You’ve probably heard of the famous axioms, “What Goes Up Must Come Down” or “Bigger They Are, The Harder They Fall”, which these two sayings also have a direct correlation to how markets tend to act in periods of rallies and declines. Now I’m not saying that we are on the verge of a massive decline, and I’m not calling a top in the market, but I do know that when we see these types of rallies, that are clearly unsustainable, they are usually met with a nasty, extended sell-off. Whether it is merely a pullback, or the next leg down in this never-ending recession remains to be seen.
What I am saying is, to use another cliche, “You Can’t Have Your Cake and Eat It Too!” Meaning that the market can’t simply rally uncontrollably, rally over 50% off of its lows in just under five months, and believe that that the market will hold those gains without the slightest hicup.
Remember though, that a bull market will go further then you ever thought it was possible (NASDAQ in the 90’s) and a bear market will take a market lower then it ever seemed believable (financial meltdown 2008-09). So I’m not calling a top, but I’m am saying to look at the warning signs, be rational when everyone else isn’t, and be ready for a counter trend that could shake the confidence of investors and traders alike.
In the words of Ben Stiller in Night at the Museum, There’s a Storm Coming!