Is it possible to be smarter than the market?
Actually, I think it clearly is! Unfortunately, this is often not a money making trait. Seems paradoxical to you? Well, when we say smarter than the market, we have to ask ourselves -
who is "the market?" The answer to that question helps us to understand the market's seeming ignorance of things like the inevitability of a Greek default, the fiscal
dis-union of Europe, the lack of political will to address long term budget challenges in the US, etc, as well as its seemingly perverse rejoicing over the most transparent of sham band aids, such as the one being applied to Europe right now.
The market is primarily composed of large financial institutions, long only pension funds, long only mutual funds, and hedge funds, who are primarily long. Given the lack of yield in most other asset classes outside of equities, as well as competitive and legally mandated performance pressures many of these participants face, any reason to rally is good enough. Many of these participants cannot sell, or if they did, their managing directors would be soon looking for new jobs. I am convinced that these investors are mostly quite intelligent, and some probably would concede privately that they do not believe in this rally long term. Nevertheless, they see themselves as having no choice but to participate while it lasts. Furthermore, for those who
can exit, they see themselves as being nimble enough to get out before it's too late.
So, in essence, the vast majority of firepower in the market is one big, long-only herd. Is it possible to outsmart that herd? Absolutely! A fitting example would be a herd of buffalo stampeding head-long towards a 1000 foot cliff. A particularly smart buffalo towards the front of the herd sees the cliff and decides to stop and turn around.
What do you think happens to him?
So, for now the herd is stampeding again. What does that represent? Obviously, the chase for yield in an otherwise barren world. For some, it also represents a rekindling of hope, and for others it may represent an acceptance of a delusive concept that the Greek problem has finally been fixed. In the comments section of the last post, HighRev brought up the critical question regarding this latest post-Greek rally: "A smashing start [to another major rally], or a picture perfect bull trap?"
Well, I certainly won't try to imply that I know the answer. However, I did a major post about this called
My Manifesto last month, and none of those opinions have changed. In that post, I did identify a critical level that I am watching in $MID, and pointed out its significance to the longer term count. You are welcome to review it, if you like.
Back to the present moment, the rally in the RUT is notable for its lack of punctuation marks, making any count suspect. Not much has changed since my last post about it, but I will update the charts anyway. The labeling of the 10 minute chart would imply that we are very near the top of iii of (c) of [w] or [a], but could be completely out to lunch as well.
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