Friday, February 18, 2011

Don't fight the tape

It is instructive to see how the markets react in the face of good or bad news. Fundamentally, there is every reason to be bearish.

The latest BoA/Merrill Lynch Fund Manager Survey shows extreme levels of bullishness, which is contrarian bearish.

I awoke this morning to see that China had hike reserve requirements again by 50bp. The Shanghai Composite was down 0.9% but Hang Seng was up 1.3%. Europe is mixed. As I write this, ES futures are actually up marginally.

Momentum remains positive and it's overpowering the bad news. The old me would have been very bearish here but now that I have embraced the Dark Side I am still giving the bulls the benefit of the doubt.

The trend is your friend, until it isn't.

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