Sam Collins

Stubborn Bears Likely to Get Burned

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Despite an early morning shock of an unemployment rate of 10.2%, the market recovered enough for the Dow Jones Industrial Average (DJI) to close above 10,000. And it took a major change of opinion on one of the bluest of the blue chips to accomplish the late rally, which also snapped a two-week losing streak in the Dow.

General Electric (GE) was the blue chip and the beneficiary of upgrades by Sanford C. Bernstein and Co. and Oppenheimer (OPY). Its gain of 6.2% drove the Dow to 10,023, up 3.2% for the week.

It was the first time since early October that the most-watched index finished a week above 10,000. Since then it seemed that every time the Dow achieved the important psychological number, some piece of bad news resulted in a surge of selling by fearful investors. 

The Labor Department reported a larger-than-expected jump in unemployment and a bigger decline than expected in U.S. payrolls for October. Another sign of continued economic weakness was a cut in borrowings for the eighth straight month, "a sign that fear for their jobs overcame optimism about the economic recovery," according to the Wall Street Journal.

Consumer stocks were higher since they might benefit from lower fuel costs. And Starbucks (SBUX) rose 7.2% after announcing an increased earnings outlook for next year and strong Q4 profits.

At the close, the Dow was up 17 points to 10,023, the S&P 500 (SPX) rose 3 points to 1,069, and the Nasdaq (NASD) gained 7 points to 2,112. 

The NYSE traded just over 1 billion shares with advancers slightly ahead of decliners, while the Nasdaq traded 604 million shares with advancers ahead by 3-to-2.

For the week, the Dow and S&P 500 gained 3.2%, and the Nasdaq rose 3.3%. 

December crude oil fell $2.19 to $77.43 a barrel, while the Energy Select Sector SPDR (XLE) fell 15 cents to $57.08. 

November gold rose $6.40 to a new record close at $1,095.10 an ounce, and the PHLX Gold/Silver Index (XAU) finished at $173.84, up $3.13.

What the Markets Are Saying

Last week, as I read the opinions of other technicians, I was surprised by the number of bears despite the "key reversal day" that occurred on Nov. 2, a turn in our internal indicators -- Moving Average Convergence/Divergence (MACD), stochastic, momentum -- and some very encouraging numbers from the sentiment indicators, including the Insider Sentiment Index, American Association of Individual Investors (AAII) sentiment survey and letter writers. 

And the bearish mood continued over the weekend, despite the turn higher on Friday in the face of the unexpectedly high unemployment numbers. One analyst even said that he "would also like to see the '500' take out the October low in the 1,020 to 1,025 zone to confirm an intermediate-top … [so that it] would open the door for another corrective leg down." He still talks of a "forming right shoulder of a possible head-and-shoulder reversal" on the S&P.

Obviously he's been bearish and the market has failed to meet his expectations, and now he chooses to be stubbornly bearish. Taking emotion out of our investment strategy will lead to better returns, so mistakes -- and we all make them -- must be quickly addressed. This analyst is now married to his bearish stance and, unless he is very lucky, a string of losses.

The long-term trend is up, and so is the intermediate- and possibly even the near-term trend. Why?