They say the trend is your friend. Not when you're on the other side of the trade.
Many of us have bearish views of the market. They can be backed up by fundamentals and technical analysis. Interestingly those with a bullish view can show their side of the argument with reasonable credibility too.
As always, it comes down to one thing only.... Timing.
I see many intellegent minds commenting on things like the 40 year cycle (every second cycle which makes it 80 years can be deflationary like the one we are likely in now), demographic changes and so man other ways of forecasting. The Terry Laundry's, Harry Dent's, Marc Faber's, Mish Shedlock, and many more seem to all be talented people.
Doesn't mean they will get it right in timing though.
The bull view (medium term 3 - 5 years) in my research suggests naivety. We've already seen the money get pumped into the system and barely drizzle out the other end. The economic data of today doesn't justify the expenses of yesterday. Whether it's unemployment figures, property prices or CPI, GDP or PMI. None of it is painting a pretty picture.
So you can be a clever person, research all this information available and it suggests to you one thing - that the stock markets will suffer for the next 5 or so years at the minimum. Now you have yourself a bearish view.
What's next? You short equities because you know how 'bad' the situation really is.
Unlike the guy that gets home from work at 5.30pm, watches the 6pm news to see what happened in the world and on the share market, and truly believes the market will always go up.
You see the market will aim to fool both views here, bullish and bearish.
How?
The 'well researched' bearish view will short the market all the way up, at every pull back they will be thinking 'finally the world is figuring out what mess we really are in'. As the market continues higher their opinion remains bearish but their conviction that the market will drop sharply is lessened day by day (where as it should be getting stronger).
Now to the bullish view. Every pull back is seen as a buying opportunity, comments like 'mate just look at China' and 'we won't get a recession in Australia' will be heard. As the markets recover from each pull back (as they have since March 2009), the bullish view is thinking 'I told you so, the market will keep going up'.
As the markets high or major turning point is nearing, two strange things happen. The bearish view has got it wrong for so long that they are either broke or at least very disheartened. And the bullish view is feeling more confident than ever and is heavily exposed to the long side.
Now the market has done it's job.
What's next? It drops sharply. The bears are kicking themselves for not fully taking part and the bulls are questioning what just happened. Both loose, market wins. Turn it around for bull markets.
We need to be in a position to advantage when opportunity presents but don't try to force it to happen on our clock we many of us do. The market has its own time for doing things and its designed to rip as much cash out of the system as possible.
(20min delay)