Why It’s A Tough Sell For Bears Now

It’s hard to be bearish after Congress avoided the “fiscal cliff.” Plenty of noise and posturing will remain–the debt ceiling in March and higher taxes in the near term–but in my view these are not important enough to derail the rally now taking shape.

While all the attention focused on Washington in recent weeks, positive trends have been taking hold in the market that now have the potential to become the dominant themes:

  • Risk appetite has been mounting: The S&P 500 is down more than 1 percent in the last three months. But during that same period the Dow Transports Index rose 8 percent, emerging markets (EEM) rose 6 percent, and the Russell 2000 small-cap index advanced 1 percent. If people really had been worried about recession, this would not have been the case. Technicians and followers of Dow Theory would also consider the strength in transports as a “non-confirmation” of the recent drop in the broader market.
  • The S&P 500 never broke support: The index pulled back within a channel since peaking in September. The late-2012 selling brought it only to the lower range of that channel. It held 1400 and is now back above the 1420-1430 area where it stalled in late October and early November. The SPX is also bouncing once again above its 200-day moving average and has made yet another higher low coming off the nadir of March 2009.

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— Option Monster

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