Toothless Bears

After the market gapped up to a new high and then reversed substantially on Tuesday, a number of market players thought we might be in for some further selling. We did hesitate a little, but there was some amazingly strong underlying support, and the bears just could not gain any downside traction at all. The slightest weakness was bought, and an amazing number of stocks just ran away completely to the upside.

What has been most interesting about the action is how sanguine the bulls have been and how toothless the bears are. There just isn't any worry or concern right now about Europe, jobs, rising interest rates, high gas prices, the slow economy or any of the other many negatives we can list.

Part of what is helping is positive seasonality. Many fund managers are lagging their benchmarks, and they are desperate to add some relative performance before the end of the year. Also, with some sort of tax deal likely in Washington, despite the political circus, there is much less pressure to lock in capital gains before rates rise next year. The tax deal could still fall apart, so we need to watch that, but too many people want this deal done for it not to happen.

The action today is a particularly good example of trends that tend to persist much longer than most people think is reasonable. It is quite easy to look at this market and think "We need at least a little rest," but the market just doesn't think like we do. It is a contrary beast that always does it best to make things difficult for us.

It is not at all unusual to have some bouts of selling as the year winds down and as market players reposition and/or lock in some gains. However, seasonality favors the bulls, and this market sure is acting like it plans to enjoy the holiday season.