The market's buoyancy during the past several months has set up investor expectations that may not work out.
Investors are used to seeing prices rebound from dips. But the next time around, that rebound may not occur. And many investors will be caught flat-footed:
The stock market’s levitation act is lulling people into feeling that repeated up gaps in the market and slow but relentless persistence on the upside are normal. Having become accustomed to this condition, most investors will be too shocked to act when the first 50-point down day occurs in the S&P.
The Elliott Wave Theorist, January 2012
Yes, market optimism has accompanied the arrival of 2012. As of Jan. 23, stocks are off to their best start of a new year since 1997.
Like a locomotive leaving the station, shares picked up more steam last week as institutional participants showed greater belief that, yes, the journey may be for real.
Marketwatch, Jan. 24
Market data confirms the optimism. A recent Short Term Update observed:
The CBOE equity put/call ratio dropped to .55, which means that there was nearly twice as much volume flowing into bets on calls (a continued rising market) than on puts (a falling market).
Short Term Update, Jan. 18, 2012
Below is the chart that accompanied the above quote (minus wave labels):
Considering the market's rise so far this year, one has to ask: Is a new bull market blasting off, or will investors' complacency prove to be dangerous?
The new January Elliott Wave Theorist presents stunning stock market time analysis -- analysis that is relevant now. And in the January Financial Forecast, the "Elliott Wave Analysis" and "Investor Psychology" sections are must-reads.