Be Careful With Long-Side Exposure

One cannot manage change. One can only be ahead of it. --Peter F. Drucker

Although the market has been in positive territory the last three days, it hasn't been very easy. We have bounced back from some oversold technical conditions, but the bulls and dip-buyers aren't showing the energy.

The hallmark of the rally off the March low was that once we started to bounce, we'd continue to go straight up with barely a pause. The bears were squeezed, and the underinvested bulls would panic and start chasing stocks back up. This time the market is struggling to regain upside momentum, and what is particularly troublesome is that good news is consistently being sold.

Yesterday after a little dithering we sold off hard on the FOMC announcement, which most would consider to be good news. There was acknowledgement that the economy is improving and reassurance that interest rates would remain low for some time. Some would argue that low rates aren't really great news, but they have been the primary driving force behind this market. Despite the reassurance of an "easy" Fed, we were greeted with another sell-the-news response.

It was with the prior FOMC announcement that we saw the first real sell-the-news response in this market since the March low. Since then, it has been a consistent theme, and we have been unable to make any progress.

Last night we had more good earnings news, this time from Cisco (CSCO - commentary - Trade Now), which is giving us a little bit of a bounce after a very ugly finish last night, but you can bet that the sellers are already looking to fade the strength. It is a pattern that has been working lately, and if there is one thing we can count on traders doing, it is staying with a pattern that works.

Many folks are counting on a rally into the end of the year to put this market back on track, but we can't let that hope distract us from the obvious fact that the character of the market has been different lately. We have weakness in the financial sector, an absolute slaughter of many small-caps and a tendency to sell any good news. The bears are gaining ground, and we have to respect that fact.

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.