Believe It: The Market Will Pull Back

"If all the year were playing holidays, to sport would be as tedious as to work."

-- William Shakespeare

Although a perpetual holiday might become a bit tedious after a while, I imagine most of us wouldn't mind if the stock market was closed for a few more days. Unfortunately, with the end of the year upon us we can't be completely inattentive unless we have already closed the books and moved to the sidelines with a bag of cash.

The short holiday week should be particularly challenging as bulls work to hold on to the good returns they have accumulated since the bottom in July and the much abused bears look to finally capitalize on a market that has lost momentum lately.

While the major indices continue to hold their uptrend fairly well there clearly are signs of trouble: The dip buyers have lacked juice lately; the Nasdaq closed below its 50-day moving average for the first time since Aug. 14; and the major indices have failed to make any upside progress for over a month now.

The bulls will tell us this is just some healthy consolidation after a good run and that it shouldn't be a big surprise because many of the big fund managers take a break during the holidays. The bears' response will be "Yeah, right. This market was pushed higher on pure emotion and now it's time to pay the price."

Given what I have viewed as excessive complacency and optimism in the overall market I tend to believe the bears are going to have some success in the near term. There simply has been too many folks sucked into the ridiculous promotion in the popular media of new highs in the DJIA. The perception of the state of the market has been badly skewed by things like talking about new record highs every few minutes. It has created a feeling that this time it's different and the market won't correct, when the fact is that it is never different: The market always ends up correcting after a big run like we've enjoyed lately.

I believe we have a good chance of at least a temporary bounce before the year comes to an end but the character of the market has clearly changed in the last week or so. I suspect the bulls are going to have some difficulty regaining upside momentum but they aren't dead yet and should be able to push things around in thinner trading this week.

For now the best approach is to make sure you defend your gains and if you are trading to the upside, keep time frames short and stops tight. Things are looking shaky. That doesn't mean we fall apart in a straight line but we need a certain amount of distrust at this point.

We have a slightly soft open on the way. Gold and oil are trading up and Asian markets were slightly.

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At the time of publication, De Porre had no positions mentioned, although holdings can change at any time.

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.