|In 2014 Markets Made Historic Highs|
|Selloffs Take Many Forms And Shapes|
|Have We Ventured Into Bubbleville?|
Often investor psychology and the behavior they display is based on recent trading patterns. In this case, many investors will react and "buy the dip". For years this reaction to each pullback has worked and garnered huge profits for many investors, but this trading strategy has the potential to cause them a fair amount of pain. Bulls trying to buy pullbacks and pick market bottoms time after time may soon find that more downside action exists. Ironically more than once I have heard a person talk about how they plan to short this market when it tops, but the fact is they won't. It is very hard to pick a market top, but if anything they will probably assume the role of buying into a falling market and getting sucked into the vortex well before the fall has stopped.
The term "capitulation" which in market terms means to surrender or give up is often used to mark a top or bottom in markets. It is often important to ask not only who is capitulating, but why. Over the last several years it has been the bears and those who saw every morning a market ready to collapse under its own weight that have ended their day in tears. It is also these same bears with their tightly placed stop-loss orders that have paved much of the path this market has made to higher and higher levels. It will be interesting to see just how many of these beaten up souls still have enough fight inside to ride the markets lower when their time to shine does occur.
If you are bullish and see higher markets ahead even though this move is long in the tooth by historical standards it is important to question not only where growth will come from, but also it's quality. Throughout history, the world has witnessed and undergone many resets. The coming adjustment will come and it will most likely be ugly and often volatile. Market crashes generally are the result of panic and so far what we have seen is more on the level of "minor concern" resulting in a chorus of cries to buy the dip. It is only after the market blows through several key support levels and starts making what some people view as crazy new lows that panic will set in, and by that time it will be too late to escape the carnage.