Up And Down, Up And Down....

Over the last five trading days we have had two sharp dips and two sharp bounces. That is a change in the character of the action from the prior couple months, but the big question is whether it is meaningful.

The bearish argument here is that a market top is a process that plays out over time, and if we have big swings from day to day, it is an indication that there is greater indecision and that the bulls are starting to weaken. Strong markets generally don't just suddenly fall apart. There is usually a period where both sides battle it out before the trend actually starts to turn down. That seems to be what we are seeing now.

The bullish argument is that this market has not cared one iota about technical or fundamental negatives, so why should it start to care now? The biggest mistake you can make is to have any doubts at all about how long and how far this market can run. It doesn't matter if we are overbought, if we have light volume or if the European sovereign debt issue is a mess. The buyers keep supporting this market, and that is all that matters.

Although I may sound a bit derisive in my explanation of the bulls' position, there is some good support for that argument. It is often said that negatives just don't matter until they do, and that is just a simple way of saying that there is no accurate way to guess when a market will top.

Many are looking to become more bearish, but we haven't managed to roll over yet. The battle is intensifying, and the bears have made some inroads. The action today negated that to some degree, but it is Monday and the first day of a new month, so seasonality favored the bulls. A better test will come over the next few days.....