I have been looking for a pullback in the market to the 1288 level on the S&P; I have not changed my opinion. I have been a bull for a long time and am very aware at the significant improvements in our US economy. I correctly predicted in a recent blog that we would see the unemployment rate, for various reasons, gap down to 9%. But the market has not been acting normal of late. I have seen this strange pattern in the past. When you have done this as long as I have, your gut begins to have a mind of its own. I will continue to play from the short side. I have been very specific about the names that we have taken to the long side. From the short side I am 2X the value of my longs. Short indexes as well as particular names such as QCOM, NFLX, HAL, and BAC. At 1287 I cover my short excess, below that I start to return to a long bias. I am bullish, but I am not ignorant. Ignorance is bliss? Many investors are enjoying the bliss. The blizzards distract us, the super bowl distracts us and The Bachelor distracts us. I look forward to American Idol and taking my kids out for hibachi. It is all bliss but it is also a distraction. Bliss is enlightenment, but then how is ignorance bliss? Market pullbacks or corrections begin with a shock to the ignorant. Shock to the ignorant is what is blissful because it ultimately brings enlightenment. Ignorance is not bliss. The ignorant are ill informed because they chose to be. They chose to ignore what is in front of them, that is the essence of ignorance. I was wrong in a previous blog where I said the market is behaving irrationally. I now actually believe that ignorance is perfectly rational, when it comes to greed. How could we all have been so ignorant to the credit crisis, to subprime unqualified homebuyers, and to Madoff? The answer is simple; GREED. The market is behaving like a rational ignorant crowd. Soon there will be bliss as enlightenment will come. Things do not go up day in and day out in the midst of geopolitical uncertainty. I actually fear that continued ignorance will lead to a much more intense pull back. Retail continues to chase this market. They will be the first group damaged by a pull back and they are the least likely to be able to absorb it. A minor pullback from here will not systemically damage the tenuous confidence the market has been able to re-instill in the retail
investor’s mind. A more systemic correction might setback the investor mentality to that of early 2010, when we began to believe that the European Union was going to crack. It didn’t. Ignorance works in both directions. Early last year the media and other pundits who look to ferment fear, ignored the reality of the Greece debt crisis and prognosticated another coming financial meltdown. They claimed the euro would reach parity with the American dollar. It did not. Enlightenment bought logic back to the market and we began a 200-point run in the S&P. When we ignore that which is around us, when we trade on ignorance, to the downside or the upside, we are just begging for a shock the system. I fear that it may be coming.
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