It looks as if at least for the interim the fun might be over – as you would expect I was booted out of my long Dow positions overnight.
As can be seen from the above chart pullbacks in extended trends are the norm and the psychology of markets is such that they can talk themselves into decent pullbacks. The psychology of the Dow Jones over the over the past few months seems to have been oscillating between the perma-bears who are convinced the market should be at 5000 points and the nervous bulls who whilst enjoying the ride have been jumping at shadows.
One of the issues that always surprises me is that people are surprised that bull markets can and do end and that traders are unprepared for any change. It is often thought that the move from bull market to bear market is sudden, abrupt and comes out of the blue. This is not the case, the market always gives warning as to what is about to happen. As an example the Dow has struggle since moving beyond 17,000. Each new attempt to move higher failed – this weakness tells us something about the underlying emotion of the market. Whilst, it in no way tells us that the market was going to fall out of bed in a big way it does tell you that something is happening.
Whilst a 300+ point drop is a nice little shock at present I will wait before making any judgement as to whether the underlying bullish move as been shattered.