Don’t Play The Hero
I love
sentiment indicators. When my sentiment indicators hit extremes, my
antennae go up. Sentiment Numbers Are At Extremes. But
that is not enough. I will talk about the specifics in a second but my main
point right now is that the market is still singing a different song. That is
why sentiment is a Secondary Indicator.
I am writing about this today because I am being inundated with this
material…too much for my liking. Just about every technician I follow is
writing about sentiment…and how the market has to turn because of all the
bearishness. I have news for you. The market doesn’t have to do anything it
doesn’t want to. Most of these technicians are starting to forget that it is
price performance first, and sentiment second. I have actually read a couple of
columns that said it was a mortal lock that the market had to turn north
because of these numbers. Well, maybe this is true — but so far,
nothing doing. You must — I repeat, must — let
the market be your guide. Some of these technicians are already eating serious
crow.
Here are some of the numbers:
- Short-term moving averages of the
CBOE put/call ratio are at the highest levels in history. Investors continue
to bet on lower prices. The masses are usually wrong. - Bearish advisors are skyrocketing
as bulls drop. - The ARMS index continues to spike
higher — on a continuous basis. - People are worried about whether to
put money under their mattresses — just in case. - ALL the news is negative. Every
headline, every report, is now about layoffs, recession and an America in
decline. - Comparisons
to Japan.
There are others, but most definitely
bearishness has picked up. Normally, the markets should rally off of this — but
this is not a normal market. I just wanted to let you know that until the
markets give me clues to a bottom, I keep my sentiment indicators on the side
riding the bench. Don’t be fooled into letting them override what’s going on in
the market.
As far as the market goes, I don’t like what I am seeing lately. This two-day
wedging-up action on lighter volume tells me odds favor more retesting. It is
also not comforting that the Semis are imploding.
Continue to go slow and don’t try to play the hero. The technical condition is
horrid, there is a total lack of breakouts and leadership remains non-existent.
I will be putting out my quarterly review on Friday. My best advice is to review
your own trades and thoughts to see what you did right and to learn from your
mistakes.
See you then.