Monday Morning Optimism

The trouble with people is not that they don't know, but that they know so much that ain't so.

-- Josh Billings

One of the things that make the present market so difficult to navigate is that there is an unusually strong motivation to try to anticipate weakness. People keep looking for negatives that may exist, but just haven't mattered. We have rallied so much for so long and there is still so much economic uncertainty that is very difficult to not dwell on when we might see some weakness once again.

In the last several weeks, the senior indices once again pulled off the remarkable feat of a straight-up move to new annual highs after a near breakdown. We have seen this happen at least a half-dozen times since March and, each time, we roll over the bears and send the underinvested bulls scrambling to try to catch up once again.

It has been a truly historic rally and even more so because while the economy has stabilized and even turned up, the pace of recovery doesn't begin to approach the pace of improvement that we have seen in the stock market. How can investors not worry and wonder how the market can continue at this pace?

It is one of the most unloved rallies I have ever seen. Even those who are bullish don't seem to embrace this market with both arms. They are long and happy to stay that way, but they aren't going to hesitate to hit the eject button when things begin to shift.

The bearish case against this market has been bolstered a bit lately by some relative weakness in small caps and financial stocks. The IWM hasn't even come close to making a new annual high like the S&P500 and DJIA. It has bounced back to its 50-day simple moving average and has formed a double-headed pattern that looks rather ominous. The XLF has a somewhat similar pattern to the IWM and is still well off annual highs and struggling at the 50-day moving average.

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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.