Bullish Sentiment Joins the List of Worrying Signs

Hillary Clinton is now saying she “wouldn’t have voted that way” if she knew
everything she knows now…about the Iraq war…and the media is turning it into
something newsworthy. If only I knew Pittsburgh would beat Seattle in the Super
Bowl, I wouldn’t have bet Seattle.

If I only knew my Giants would lose 5 out of the last 6, I wouldn’t have lost 5
out of 6. If I would have only known the 6 numbers for the Powerball Lottery
this past week, I would have $20 million in my pocket today. If I knew Ladanian
Tomlinson would score several hundred touchdowns this year, I wouldn’t be stuck
with another year of mediocrity for my fantasy league team. I think you get the
hint by now.

I love David Stern for suspending the leading scorer in the NBA for 15 games. I
don’t think other commissioners would have such grapefruits. Carmelo Anthony is
lucky…that his sucker punch did not land and cause harm.

Shorter-term, we do believe the market does have some issues…but these are
only short-term issues so far. NEW HIGHS have started to lag the recent move. In
other words, as the major indices continued higher over the past week or so,
fewer stocks were hitting new highs…a short term divergence. On top of that,
many leaders out of the box have been losing some of their sponsorship. The good
news is other stocks have come to the front. On top of that, put/call figures
are now a little too bullish for our tastes as the wrong-way crowd is becoming
near-term bullish. But even with all this, we do not get worried unless the
first line of support is broken…and with holiday trading just ahead…which is
usually a positive, we are not so sure the market will give back too much
here…but will let the market decide that.

Those short-term support levels are now Dow 12,243…S&P 1403…NASDAQ 2416…NDX
1767. Keep your eye on the NASDAQ and NDX because if there is going to be
trouble, it will start there first as we are already seeing subtle distribution.
We also make note that GOOGLE just rolled over as it broke $477…a not so
unimportant stock.

Before we talk sentiment, we do want to make note of a few things…including
sentiment.

MEGA-CAP stocks like
(
C |
Quote |
Chart |
News |
PowerRating),
(
GE |
Quote |
Chart |
News |
PowerRating),
(
AXP |
Quote |
Chart |
News |
PowerRating),
(
IBM |
Quote |
Chart |
News |
PowerRating) and others have moved
more in past weeks than they have in past years. We are not saying this is a bad
thing…because you can just buy mega-caps right now. We just wanted to make
note that in the past, money would flee to them at the end of moves.

COMMODITY and COMMODITY STOCKS are starting to show some serious distribution
here. GOLD and SILVER are rolling over with SILVER dropping a whopper of 7% on
Friday.

STEEL stocks are also now rolling over as
(
NUE |
Quote |
Chart |
News |
PowerRating) missed by a mile.

OILS seem to have put in a near-term top yesterday even though OIL PRICES were
down nominally. The best names pulled back…the recent breakouts failed and the
worst names are already breaking down in the OIL complex.

We also want to repeat that we are now worried about sentiment becoming too
bullish and too frothy. Just keep in mind, sentiment is a secondary
indicator…volume and price are primary. Also, sentiment is not a pinpoint
indicator…but more of a lagging indicator. On top of the put/call figures:

The % of bullish advisors is now near the 60% range with bears down to a very
low 21%.

The VIX went under 10…the lowest figure in more than a decade. The VIX does
not matter much to us…until it matters.

Bulletin board stocks are thriving.

The wonderful investment bankers are now parading out reports of the next
hundred companies that will be bought out by private equity. You must remember
that Wall Street is first and foremost, a marketing machine. Whatever gets
hot…gets the most play.

IPOs are starting to cook.

Insider selling is at multi-year highs.