One of the ways I look at the market is in terms of a giant teeter-totter...I see the market swinging up and down as psychology changes from bullish to bearish. I try to judge what the prevailing mood is, relative to whatever time frame I'm using, and then either establish a position in line with the trend or look for signs that the trend is about to change. I use hard data such as the COT reports, gut instincts such as how a bull market takes bad news, and chart patterns to gauge whether a trend is likely to continue or reverse. I'm mindful that market trends often go far beyond what I think is reasonable so I've developed a risk management technique I call, "Anticipate...but wait for confirmation," to restrain myself from trying to pick tops and bottoms.
We had the biggest credit blow-out in history in 2007-08 (after 30 years of boom times) and asset markets collapsed in anticipation of a depression. Authorities around the world countered the deflationary forces with massive fiscal and monetary stimulus (again and again and again.)
In teeter-totter terms the market will rally when it thinks that the authorities are prevailing (like now) and will fall (like August/September of last year) when it thinks that the authorities are losing the battle against deflation. So we have risk-on, risk-off, as public confidence in central planning waxes and wanes.
.....read more of Victor's analysis HERE