Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Rather than write this piece, I am going to grab a snippet from an article written by Rev Shark at Realmoney.com (subscribers only) yesterday which is in the back of every bear’s mind in relation to how this market works since 2009. Yesterday sure was “surprising” based on a lot of the blogs I scan and the twitter feed, so I am not alone in some head scratching, especially in light of the major distribution days we’ve seen clustered at once:
Since the market low in March 2009, one of most consistent tendencies of the market has been to bounce and keep going. In the old days you could actually fade an oversold bounce aggressively, but now you are likely to be crushed if you have any doubts about the market’s ability to turn back up and keep on running.
I suspect that this change in behavior has something to do with high levels of liquidity and more aggressive computerized trading. It is obvious that normal human emotions don’t tend to swing to the extent we see these days. We often hear that the market has no memory from day to day because the computers are programed that way.
After a breakdown like we’ve seen over the past week, the normal psychology would be a relief bounce that eventually runs out of steam as the bears reload shorts and trapped bulls unload positions. At some point, a bounce after a breakdown produces a logical exit point. But that thinking doesn’t seem to apply to the market anymore.
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