I do not like markets that move in a straight line as I am a "mean reversion" trader and investor. As a market is becoming stretched I slowly sell into it, expecting to be able to purchase my positions back at better prices when the rubber band ultimately snaps back. In recent years we have witnessed markets that go a lot further in both directions without corrective moves in between. In late July through early August we witnessed the S&P 500 fall nearly 20% in the space of three weeks, with nary a bounce in between.
I have adjusted my trading and investing to allow for these larger moves. I fought my tendencies very hard in staying invested for as long as I did, but ultimately it appears I have sold too early. Luckily, I have stayed at a small net long position rather than having gone net short. My recognition that markets have tended to move in a straight line recently played a role in this decision.
I believe hedge funds are the reason that market moves tend to persist without any corrective moves in between. As a group hedge funds employ a momentum strategy where they de-risk as the market goes down and re-risk as the market goes up. When the dominant player in the market employs a momentum strategy market moves are more likely to persist.
While adjusting my strategy, I have not abandoned it and plan to continue selling into this rally if it persists. The signs of froth continue to mount as the market becomes more stretched. While it has taken a longer time for the rubber band to snap back in recent years, it ultimately has. With a vengeance.