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[PIK.]

Anatomy of a bull market

By Mark Hulbert, CBS.MarketWatch.com
Last Update: 12:01 AM ET Dec. 31, 2003




ANNANDALE, Va. (CBS.MW) -- You will rarely see a more perfect textbook illustration of a bull market climbing a wall of worry.

Gold over the past month has hit new high after new high, culminating yesterday with February gold closing on the Nymex at $417.20 -- its highest level since October 1988, more than 15 years ago.

Yet, far from becoming more bullish, the average gold timer over the past month has become steadily more bearish.

This is a very significant development that contrarians take to mean that gold's bull market has further to go.

Usually, of course, market timers become more bullish as the market rises, and more bearish as the market declines.

That's because, despite allegations to the contrary from Eliot Spitzer, market timers are human. We all tend to become more optimistic and exuberant as the market rises, and more despairing as the market declines.

And that is why the greatest preponderance of bulls is found at market tops, while the greatest proportion of bears occurs at market bottoms.

Consider recent readings from the Hulbert Gold Newsletter Sentiment Index (HGNSI), which measures the average exposure to the gold market among a subset of gold timing newsletters tracked by the Hulbert Financial Digest. As of the market's close on Tuesday, the HGNSI stood at 11.5 percent.

As recently as Dec. 9, when gold bullion was trading for $10 per ounce less than where it closed Tuesday, the HGNSI stood at 65.4 percent.

High as this 65.4 percent reading might otherwise have appeared to be, I nevertheless interpreted it to be a bullish sign. Despite gold bullion's march to new highs, the HGNSI at that time was still well below its all-time high of near 90 percent. (See column I wrote around that time.)

But if a 65.4 percent reading was bullish then, the current level of 11.5 percent is even more so now. It reflects a remarkable degree of skepticism among editors of gold timing newsletters. It is precisely the kind of psychological background that provides support for further upside action.

The usual caveats apply, of course. Sentiment is not the only thing that makes the world go round, and there are no guarantees.

But sentiment is an important piece of the puzzle.

Think of it this way: Gold's bull market would be on far shakier ground if sentiment among market timers had risen over the past month instead of declined

[uncleharley]

Good post.. With decline of the $$ appearing to accelarate a bit, I don't understand the bearishness. Of course a small correction can take place anytime.