Trading the Markets: Conditioning, Behavior and Emotions

Human behavior never changes, and when it comes to money we use the scale of fear and greed.  These are like the boundaries of the football field.   We can see the behavior and moves on this spectrum play out in the stock market.   Charts and technicals give us a great read along with sentiment indicators.  So far in 2014 that sentiment is showing far more fear than greed.  Is that an indication of something to come?

Most recently a surge in volatility due to various issues has caused a little weakness in the knees of the bulls.  After a year where the bulls were emboldened and every dip bought, the bears are probably just waiting for their moment.  It'll come at some point, but who wants to make that timing bet?  As mentioned, 2013 was year of buying the dips, no matter how painful they were.  Since January 2012 the market correlation bubble has been contained, coincidentally that is when the VIX really started to decline. 

As a technician I look for repeatable patterns and play these as my highest probable odds of success (based on the fact human behavior does not change).  In 2013 many were conditioned to buy that dip - and it usually worked.  But what happens when patterns are no longer reliable?  Real Money Contributor Helene Meisler correctly reminds us often the market teaches us and then all the sudden it changes.  If that is indeed the case once again then we may see failure and then more downside.  But I will first wait to see if that is the case. 

Is the recent news a cause of the recent market downturn or just an excuse?  I don't believe we are looking at something that cannot be overcome, but with Greece, Portugal, Ireland and other trouble still fresh in our minds there is cause for worry (and the market is truly reflecting it!).   Markets certainly are on shaky ground, but is this just another dip to buy?  Or is there a change in character?  Bull markets don't last forever.  Let's remember, there are a million reasons to sell but only ONE reason to buy.