Editor's note: This condensed Trading Diary post originally appeared earlier this morning on RealMoney.com. To sign up for RealMoney, where you can read Rev Shark's views on the market every day, please click here for a free trial.
"You tried your best and you failed miserably. The lesson is: Never try."
-- Homer Simpson
The story of the bear market is really a story of failed rallies. Since the top three years ago we have had at least a half-dozen very powerful runs that failed miserably. Each and every time there were folks who were quick to proclaim that the bear was dead and the start of a new bull market was upon us.
Whenever we have had one of these bear market rallies the easiest thing for market commentators to do is trot out the standard rhetorical question: Why should it be different this time? The bears' argument has been the same over the past three years -- the market is too expensive, the economy is struggling, there is a lack of willing buyers and technically the big downtrend is still firmly in place.
For the first time since the top in 1999 I am starting to contemplate seriously the possibility we are getting to a point where this time it really might be different. I'm not willing to proclaim that the death of the bear is at hand but I am willing to start adjusting my mindset to at least consider the possibility that better days are not too far in the future.
If you have been trading over the past three years you have probably developed some bear market habits that have helped you survive and prosper. But like the bulls who survived the bubble days there will come a time when you have to make a major change in your style in order to continue to prosper. Bulls who were unable to adapt in 1999 are mostly in another line of work these days. One of these days bears will have to learn to adjust as well.
Even if you think I'm a fool for suggesting that the bear market will end one of these days you should at least think about how you might change your approach to the market should a bull market begin to re-emerge. What would you do and how might you change your style to produce better results?
Personally, I know the biggest change I will have to make is to increase my long-side holding periods. The bear market has trained many of us to take long-side profits quickly and often -- or risk losing them. In a bull market it will pay to be more patient, and I will have to work on cultivating that mindset once again.
Let's look at where we are this morning. The low-volume strength yesterday caught quite a few people by surprise. When folks are caught by surprise they often help accelerate the trend that is emerging as they quickly reshuffle their approach in an attempt to score some quick gains. The big question now is whether we can keep this upward move going.
The single biggest concern in my mind was the drop in volume yesterday. Ideally, we want to see volume building as folks worry about being left on the sidelines as the market runs without them. However, don't jump to the conclusion that because the rally was a bit light on momentum that we will be seeing a big pullback. We have to give this rally the benefit of the doubt until there is some clear reason not to. As long as the uptrend lines are holding I'm a believer in the long side.
James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Florida. He is a member of the Michigan Bar Association and a former tax attorney and CPA. De Porre holds business and law degrees from the University of Michigan. He was formerly the host of America Online's The Shark Attack and presently operates SuperTraders.com. He is a pioneer in the online trading world and has been an active participant in chat rooms and message boards since their advent. You can contact him at RevShark@aol.com.