Everybody is nervous about the market rally of the past couple of months… so it just keeps going up. That’s just how the market works. When too many people are looking for a top it just won’t happen. As I’ve said many times the skeptics have to capitulate before the market rally will be over. Capitulation is to stocks as the fat lady is to sports. And when the last of the naysayers does finally capitulate many times you will see a blowoff top.
Today actually felt like the market inspired a degree of capitulation. It felt like it could be a blowoff top – right here, right now. The problem with a blowoff is that you never know how far it can run. From October 1999 to March 2000, it ran for 100% return in a mere 5 months. This market could run another few weeks and maybe 10% before it’s done. The news of the Dow hitting 14,000 for the first time in over five years is sure to make those sitting on the sidelines feel a bit envious and maybe even a little greedy. This is the latent demand that blowoffs are built on. Then again, the market could also reverse on Monday and not see Dow 14,000 again for some time.
The bottom line is we have entered the euphoria stage in the stock market. Putting your money in the market right now is purely a speculative endeavor. True investors don’t buy euphoria; they buy fear. The greatest investors are legendary for their patience as much as their methodology. Traders, roll your stops. Investors, hold your horses.
Chart of the Day
Dr. Copper (PhD in Economics) broke out to the upside today, clearly emboldened by Mr. Market’s infectious enthusiasm. This pennant has been forming for a little over a year. The breakout, if it holds, is a bullish sign for stocks and the economy.
