I don’t think this will ever change. I think this crisis and the resulting market volatility has turned many people off from the financial markets and from trusting what the government has said. But do not confuse people not trusting the recovery to people thus fueling a continuation of a rally. The fact is, nobody wants to be short now, even if they don’t believe in the rally. In fact, people still want to go long, even though they don’t believe in the rally. When there are few people taking the short position, then there can’t be much fuel for the fire. And the fact is, the government stimulus programs are ending soon and the Fed’s quantitative easing programs are coming to an end with only a few billion left since the rest are in bonds and (probably) equities.

The biggest bullish sign was when Bernanke said the Fed would buy 1.2 trillion dollars in longer dated treasuries. You didn’t need to know technical analysis, earnings or economic fundamentals to know that was a time to buy because the Fed was going to buy securities if nobody else would.

I do expect better than expected earnings due to lower wages, weak dollar, and no significant increase in commodity prices. Perhaps, a 4th Quarter short position might be a good idea if one is betting on a dollar rally.

I want out of my GBP shorts soon… trade’s too crowded. Long GBP/JPY during earning season?

I am less convinced of the short/medium term bearish view (in bearish, I mean the bear’s wet dream of the S&P 500 below 500.) I doubt the will happen because there are so many people competing for return by looking for “value”, and low interest rates means one can put higher multiples on stocks. Furthermore, I think the market nows as a very strong built in support — too many people are long term bearish, and the ratings for CNBC has plummeted, and bearish websites such as zero-hedge, and seeking alpha are popular. In addition, mutual fund allocation to equity funds are at 44% far below the average of 51% from 1998-2009. Metagame considerations say that bearish views must be more long term bearish than other bearish views. I derive my bearish view from a socialist analysis (although unfortunately, it does NOT yield a contrarian scenario since Austrian analysis always yields similar results, and I must note that the two views are not mutually exclusive although their policy recommendations are.) However, the Austrian right-wing view, is not contrarian as many people embrace it. My case is similar to the one here: http://yaleglobal.yale.edu/content/could-globalization-fail .

almost any technical indicator is oversold on a daily basis. Don’t be shocked if we bounce a little bit.