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Why Can't We Go Down?

|Includes: SPDR S&P 500 Trust ETF (SPY)

That title is a point of contention bugging both bull and bear traders this month.   All the anecdotals didn't work this month:  beware the ides of march, 1 yr anniversary of the bottom, earnings warning season, end of a good quarter, tax selling (and a whole host of others).  The market has been overbought for a long while, and that's natural.  An overbought market can STAY overbought for quite some time, it's just not believable.  That's one reason why we haven't seen a significant sell day of yet.  The biggest down day has been off 5 handles on the SPX.  So, why can't we get a correction of significance?  Here are some reasons:

   1. The overbought market is not believed, hence the bulls don't see a reason to take money off the table yet.

   2. The bears are yet to capitulate, and while this seems harsh or unbelievable there just is too much hope for the market to decline.
   3. Sentiment is still tilted too bearish, which means in a low volatility environment the trend can continue.
   4. Index put action is picking up, a hedge against long positions.  Let's face it, you own apple under 200 and you don't want to give it up, you'll either buy puts to protect, sell calls against it or in a portfolio you'll buy index puts as protection.
   5. Bulls have dug in their heels at big levels, the next one being 1150 on the SPX.  Until that level is broken significantly there won't be major downside action.
   6. First quarter is on a path for a big gain, and portfolio managers would like to post a healthy gain for three month period.
   7. Dip buyers are back and are supporting the market.

I'm sure there are many other reasons, and as I've said before there are a million reasons to sell, but only ONE reason to buy.  That being said, perhaps the end of the quarter will provide us with a chance to sell and get away.

by Bagger Vance

Disclosure: no positions