2 replies to this topic

[Rogerdodger]

P/C has made a channel of higher lows and highs which, if significant could mean more room to go.

Edited by Rogerdodger, 04 March 2007 - 01:13 PM.

[arbman]

Rodger, I have only one argument about the sentiment. When the people got bullish in 1999 or so, even the commercials had to cover. Yes, most of the time the people will come wrong, they will loose money speculating too. However, one or two of these rare cases that when the people's emotions surge and they all pile in, it is quite hard to stop that freight train... For example in late '90s, people got so bullish that with the little help of the central banks (rates), the top of the market was easily blown off. I am afraid the opposite is happening with the record bearish bets both in short selling and option speculation, only if the central banks (rates) continue or find themselves forced to rein on the liquidity, then the equity markets' bottom will easily fall out... Is it at such a juncture? Absolutely, the liquidity everywhere is drying so fast at the moment, I showed this in many charts. Nobody will step in here to save the markets, the central banks are also stuck. So, there is probably a tremendous bearish trend in place, imho. This whole trend was based on the assumption of the huge liquidity since the growth stocks have been lagging for a long time, if the inflation disappears, then what will prevent a bear market?!? The main reason of these imbalances is the weakness in the USD, imho. The markets will destroy enough USD until everything stabilizes, this means more money supply and credit/loan destruction, or deflation. I have seen these examples before in many countries, they either devalue the currency and go through a quick crash or stay in a bear trend or correction path until the imbalances are restored. So, at this point, I can not see how the Fed can create more liquidity without inducing a crash, or convince the other central banks to print more or buy even more the US Treasuries while they are still tightening. This is the description of the current imbalance, imho... - kisa

[Rogerdodger]

Hi Kisa.
Sentiment has lots of problems.
It has to be measured for one.
It has to be interpreted for two!

I think sentiment on the Titanic was very high....UNTIL it hit the iceberg.
Then it shifted to extremely bearish.
That shift was appropriate.
So my point is that often the crowd is right.

What I look for is jumps at the extremes. Sort of like a "blowoff" in price.
Maybe that AAII 71 last week was a clue.
Although it was not the highest reading on the chart, it was the highest in a year!

Just now, this week, we have finally seen a shift in longer-term sentiment measures.
These measures have been very bullish for months and are only now getting to neutral.
They haven't been at this neutral level since August 16th, 2006.
I think they have farther to go towards a bearish shift before a "blowoff".
This 5 1/2 month bullish shift is reflected in this:

"Margin debt tracked by the New York Stock Exchange has hit a new record high. Traditionally, this is viewed as a sentiment indicator reflecting extreme bullishness. The interpretation is bearish and contrarian."

Perhaps the "China problem" would have had much less effect had there been more bearishness.

Edited by Rogerdodger, 04 March 2007 - 08:53 PM.