Put Away the Party Hats

As I mentioned earlier, my working thesis is that strength in the first few days of 2007 will set us up for a very sharp dip within the next couple of weeks. I believe there are several things that are coming together right now that are going to trip us up, at least momentarily.

Foremost is the very high level of complacency. We have bullish forecasts across the board for 2007 from pundits and gurus, a widespread belief that housing has bottomed, and little doubt that a soft economic landing is about to take place.

Some are even saying that this is an "amazingly positive moment" in the market. Throw in weak oil and the large amount of cash in private-equity funds, and what choice do we have but to go up?

We may indeed have a very good 2007 when we close the books a year from now, but in the short term, the anxiety to jump in big at this point and to worry about underperforming is exactly the emotion that tends to trigger sharp reversals.

This is highly emotional trading right now, and as buying power is depleted and the excitement about the new year ebbs, the driving force behind this rally will dry up quickly. That will trigger the rush for the exits and give us a nasty little dip. I can almost see the market beast licking his chops right now and planning on how he is going to pull the rug out.

Enjoy the new year euphoria, but don't trust it to last for long.

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James "Rev Shark" DePorre is the founder and CEO of Shark Asset Management, an SEC-registered investment advisory firm. 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 to send him an email.