Euphoria this morning on better-than-expected inflation numbers gave way to an ugly reversal late in the day. Too many folks were leaning the wrong way, and that gave us a rather frothy move with a lot of speculation in some of the "junk" small-caps. As I mentioned this morning, the possibility of a blowoff top was in the air.
On a day like this, many start off cautious and then force trades because they fear being left out. That fuels the surge up, but when things falter, they race for the exits, and we get the sort of reversal we saw late today.
A lot of folks, myself included, have recently been questioning the validity of the idea that there is tame inflation, the economy isn't going into recession and that the worst is over. It is those pessimistic folks who end up fueling the frenzy we saw this morning as they become frightened that maybe they were wrong and the bear market might really be over. They might still hold on to their convictions, but they can't take the pain of an uncooperative market.
The type of action we saw today is not unusual during a bear market. Big, strong bounces come within the larger downtrend because people really do believe that the worst is over. It is when that doesn't prove to be the case that the real pain of a bear market is felt. I continue to believe that we have some fairly substantial downside ahead of us, and the reversal today reinforces that belief.
Have a good evening. I'll see you tomorrow.
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.
