Why So Nervous?
Man, I have got the
“Willies” right now. No, not because the market is headed
back down. I saw that coming. In fact, the markets are following my script quite
nicely. Just read my last
report. I simply gave out reasons why you had to
get defensive starting this week.
No, not because the market could retest the lows. I have
no clue if that happens. One has
to play that day by day. On the positive side, I wouldn’t discount
the fact that many bad markets have put in intermediate-term bottoms
in October. We are getting close to October,
but we must wait. September first…and
September has not been fun in the past.
No, not because of the many failed breakouts that have
occurred. Just take a gander at
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No, not because the major indices have
reversed below their 50-day averages.
It can’t be my beloved Yankees. They shut out the lowly
Red Sox 13-0 over 2 games.
It’s the bullish/bearish numbers that I follow. If you
have been following my columns, there has always been one sentiment number that
has worked beautifully for me.
In fact, it has helped me nail the markets many times. INVESTORS INTELLIGENCE
polls, on a weekly basis, financial newsletter writers. They are the
“wrong-way crowd” because they are trend followers. In other
words, they turn bullish AFTER a move up and
bearish AFTER a move down. Throughout
the drop from March 2000 they remained steadfast in their bullishness, leading
me to believe the markets had no chance. Of course, I watch stock price action
and volume first…but their bullish numbers stayed at historically high levels.
Well, in the past few months, AFTER an 80% drop in the
Nasdaq, a 50% drop in the
S&P 500 and carnage across the board, they finally turned bearish. This
was good news because it usually gives the
market an opportunity to turn back up.
Once again, this is a secondary indicator, but one you can’t ignore.
Fast forward to today…the market is now retesting and
starting to act like Pete
Sampras’ tennis career. I wake up this morning and what do I see? Bearish
sentiment falls from 40% to 31.5% and the bulls rise from the grave
from 36.7% to 45.7%. A rise in the numbers is
OK, but not a rise like this. It tells me the wrong-way crowd — after only a
one-month rally — are already jumping
on a supposed trend and are already thinking the bear market is over. You may
want to read my
sentiment lessons that I wrote for this site for
a better explanation.
More importantly, stay defensive and don’t listen to the
perma-bull crowd. The bulls will have their day again…one day. It will be my
job to interpret it as it
happens…not to predict it.
You can watch me on Fox News Channel’s “Cashing
In” show this Saturday 11:30 a.m. EST. Please tune in.
Lastly, my staff and I wish everyone a safe and happy
holiday. Drive carefully.