Confused Bear here

Well I wanted to make it official here. The market has done an amazing job at questioning my core beliefs. I had mentioned some of this in the comments yesterday but I wanted to go into more details.

As many of you know I am as bearish as it can be with expectations of the S&P500 falling even further with significant low below the 500 range most likely 480. I had my justifications and reasoning from a technical and fundamental perspective. Regardless - I have to accept that I could be wrong and that my overly bearish views have prevented me from seeing the obvious.

This rally off the march lows has been incredible, no one can deny that. Bears and bulls were surprised. But I think the bears were the ones that are now at a difficult point. We have broken the previous highs of the last bear market rally, are above the 200dma and have been able to hold above key support ranges. Regardless of whether I feel the markets are being manipulated - it does not matter. They have been for years, decades, longer then any of us have been trading so there is no one to blame.

At this point I am accepting the fact that the bear market could be over - yes I fundamentally believe very strongly that this is not the case but belief and what is actually happening has to be distinguished.

I am a pessimist by nature and I asked myself - looking back at lets stay 2003 or even 2004, with the information that was available back then, I am pretty confident I would have expected the market to turn lower. Consumer credit through the roof, leverage, etc. Ultimately we turned lower in 2007 but not before recovering ALL of the losses from the dot com crash. So here we are again with my fundamental views very negative - however, many people I talk to on a daily basis, cnbc, the general public of the belief that this will be over soon. Everyone is scared but they are hopeful as the news presents a much better outlook.

Can this go higher here? Could it be that the general public believes the worst is behind us? You tell me, I for one think its possible. I am not going to say anyone is being fooled here and that things are bad, well they are bad no question, but they were bad to some 5 years ago, 10 years ago, 15 years ago and before. You can always make a case for a negative point of view and my pessimism and negativity is the one that has gotten the better of me.

Look at the positives - banks are solvent, they have the support of the govt. While we still have a huge amount of bad and toxic assets they will eventually be washed and written off. It will take time but the cat is out of the bag - we know its going to be bad, and we are ready to deal with it as it arises. We are now much more confident then we were last year when it came as a shock to everyone without really knowing what to do and how to fix it - this is different now - we are confident that we have more control over the problems and are implementing fixes so it won't happen again.

I think we have the making of ending this recession here, maybe this quarter, maybe next, possibly this year and my long term prediction of 480 will never come true.

Most traders do not care about direction and I keep on hearing "I trade what I see" - well thats easy to say after the fact. Yes I am seeing the long side is working amazingly here (as I had described in my long post a few days ago) and the short side is meant to burn money. As my views are bearish BUT a few key events have occurred that put my bearish view into question, I have no choice but to step back from the markets until my views and the markets are aligned again. At this point, regardless of price I am very uneasy taking a long position due to the fear I personally have of more downside pressure, of course trading on the short side has been nothing but a disaster and has put my account to the largest drawdown yet. So if I cannot go long confidently and shorting brings me no money, what am I really doing here?

The "easiest" scenario is usually the right one - do you see a sudden change in direction here? to turn lower? After having 4-5 months of confirmed upside? Remember we are talking about a large time frame here, not just a 1-2 months bear market rally. This move has been building up for almost half a year. For me a sudden turn to the downside would be very surprising and could only occur due to a catastrophic event - even horrible earnings will not let this market move lower.

The easiest scenario for me at least seems to be more upside for a trend that has now been established for 4-5 months. Longer term investors say its impossible to catch a bottom - maybe this was it? What arguments do we have against it?

Either way (I love saying that heh) - I will be taking a considerable break from the market here. I am still exposed on the short side and will be looking for exists over the next few days or possibly close out with a fairly large loss. After that its time to dedicate towards some other things in my life that at this point seem to bring more joy to me. I will be around and will enter a trade here and there but more as a passive trader/investor.

And if I was right, and we get to 480, well then I can surely be a buyer there with confidence that we have a great base for a long term position =)

Feel free to get in touch with me or add me on MSN - chaugner (ad - @) hotmail (just removed some of the things for spamming reasons but you can figure out the address). Also, if you have any questions market related or not - I am always there to help out so don't be shy.

Of course I will make a post here and there again to share my opinion and other things. I wish everyone the best and if you are looking for more information. There is a great deal of blogs out there with good technical info - cobra, evil, slope - those are the three main ones I visit frequently.

Good luck all ... and I am sure we talk again soon.