(By Michael Harris) Each time the market tries to rally and either attempts to challenge previous highs or make new ones, this trash talk about irrational moves emerges and makes headlines. It is clear to those with some market sense that the source of such trash talk is either permabears or analysts who have no clue of what makes the markets move but instead try to attribute significant moves to psychology. In most cases, these are the exact same people who will turn bullish just before the market is about to turn bearish.
If you missed the 100 point rally in S&P 500 from early June but instead you are now trying to convince everyone that this was an irrational move then, probably, you are the one who is irrational and the evidence can be found in the posts of this blog that kept warning of a bullish move based on divergences and patterns of price action (Here and here, for example). There are simply no irrational market moves. This is not the times of tulip mania in Holland. People are much more sophisticate nowadays and make bets based on expert analysis. Irrational are those who come after the fact and they claim that an already developed move was irrational. Bets are simply bets and attempt to extract positive expectation. If I bet that the 100 meter winner in the Olympic games will be the guy with the worse record, the odds are against me but the payoff is very high. Whoever calls me irrational, I call him stupid and ignorant of probability math.
Disclosure: no relevant position at the time of this post.