It was one of those joyless positive days where the indices were up big and breadth was extremely strong but volume was the lightest in a month and there was far more grumbling than excitement about the action. We even saw another big squeeze of the shorts who were looking for a fade in the final hour. Too many folks never managed to put much money to work and the bears, who were looking for a quick rollover, just added fuel to the fire.
It all boils down to just one thing: After the sharp spike up last week, too many people simply were not prepared for this sort of action. That seems to be the new normal for the market, but it isn't easy to keep expecting the market to do what seems the most unlikely. There were no obvious positive headlines today, other than some vague plans to make plans to solve the European debt crisis. But once the buying took hold, it just kept on running, as the bulls scrambled to participate and the top-calling bears were continuously squeezed. The winning approach was to go contrary to the contrarians who wanted to fade strength.
I believe conditions are good for positive action during earnings season, but action like we saw today does not make for a good foundation. Many traders are greatly frustrated by this action, which is part of what keeps it going. But they have good reason not to be very trusting when the action has such a manipulated feel to it. Even if you do understand the psychology of what is occurring, it's still extremely difficult to trade.