Mark Hulbert's Capitulation watch.

MARK HULBERT
Capitulation watch
Commentary: Contrarians are waiting for more bears to turn bullish
By Mark Hulbert, MarketWatch
Last update: 11:55 p.m. EDT Aug. 25, 2008Comments: 11ANNANDALE, Va. (MarketWatch) -- The editor of the average short-term market timing newsletter became no more bearish Monday, despite a 240-point plunge in the Dow.
Therein lies a tale whose moral is, at best, worrisome for the stock market's near-term direction.
Followers of contrarian analysis do not believe that the final low of the stock market decline that began last fall will be seen until a lot more market timers throw in the towel.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market timing newsletters tracked by the Hulbert Financial Digest. As of Monday night, the HSNSI stood at minus 1.3%.
Not only was that unchanged from Friday's reading; it's a lot higher than the low to which the HSNSI descended earlier this summer.
On July 1, for example, when the Dow Jones Industrial Average ($INDU:Dow Jones Industrial Average
$INDU 11,386.25, -241.81, -2.1%) closed at 11,382, only four points lower than where the Dow closed on Monday, the HSNSI stood at minus 42.9%.
In other words, even though the stock market is essentially at the same level as nearly two months ago, the recommended exposure level from the editor of the average short-term market timing newsletter is now more than 40 percentage points higher.
That's not an encouraging trend. Even at the HSNSI's much lower level in early July, it still wasn't very clear that there was enough pessimism to mark the final bottom of the decline that began last fall. See July 2 column
But even if the midsummer sentiment low counted as sufficient capitulation, the rush back towards bullishness since then would go a long ways towards modulating its bullishness.
Bull markets, especially at their beginning stages, are typically met with skepticism, with a so-called wall of worry. The consensus view on such occasions is that the market's rise is nothing more than a bear-market rally, an opportunity to unload yet more stocks.
That is not how the average market timer has reacted to the rally over the past six weeks.
Could the stock market nevertheless rally from current levels? Of course it could, just as it could -- and did -- decline during the early part of the past year's bear market in the face of what I argued was a healthy dose of skepticism.
But, based on my 28 years of tracking investment newsletters, I'd have to say that any rally that begins from current levels is more likely to meet the same fate as the rallies that began in January and March.

It's the learning curve. At this point, it's all about entries & exits - not philosophies & panderings about where markets will or won't go. Those things may apply to Joe, but probably not to timers. My 2 Cents.

BW

MARK HULBERT
Capitulation watch
Commentary: Contrarians are waiting for more bears to turn bullish
By Mark Hulbert, MarketWatch
Last update: 11:55 p.m. EDT Aug. 25, 2008Comments: 11ANNANDALE, Va. (MarketWatch) -- The editor of the average short-term market timing newsletter became no more bearish Monday, despite a 240-point plunge in the Dow.
Therein lies a tale whose moral is, at best, worrisome for the stock market's near-term direction.
Followers of contrarian analysis do not believe that the final low of the stock market decline that began last fall will be seen until a lot more market timers throw in the towel.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market timing newsletters tracked by the Hulbert Financial Digest. As of Monday night, the HSNSI stood at minus 1.3%.
Not only was that unchanged from Friday's reading; it's a lot higher than the low to which the HSNSI descended earlier this summer.
On July 1, for example, when the Dow Jones Industrial Average ($INDU:Dow Jones Industrial Average
$INDU 11,386.25, -241.81, -2.1%) closed at 11,382, only four points lower than where the Dow closed on Monday, the HSNSI stood at minus 42.9%.
In other words, even though the stock market is essentially at the same level as nearly two months ago, the recommended exposure level from the editor of the average short-term market timing newsletter is now more than 40 percentage points higher.
That's not an encouraging trend. Even at the HSNSI's much lower level in early July, it still wasn't very clear that there was enough pessimism to mark the final bottom of the decline that began last fall. See July 2 column
But even if the midsummer sentiment low counted as sufficient capitulation, the rush back towards bullishness since then would go a long ways towards modulating its bullishness.
Bull markets, especially at their beginning stages, are typically met with skepticism, with a so-called wall of worry. The consensus view on such occasions is that the market's rise is nothing more than a bear-market rally, an opportunity to unload yet more stocks.
That is not how the average market timer has reacted to the rally over the past six weeks.
Could the stock market nevertheless rally from current levels? Of course it could, just as it could -- and did -- decline during the early part of the past year's bear market in the face of what I argued was a healthy dose of skepticism.
But, based on my 28 years of tracking investment newsletters, I'd have to say that any rally that begins from current levels is more likely to meet the same fate as the rallies that began in January and March.

Hulbert has it right conceptually, but I've found his read of his own sentiment to be a bit spotty. What I found promising is that his Nasdaq traders fell from 43% long to 7% long in a few days. At that rate, you get into Buy territory fast. Mark

Sediment is a spotty (dirty) thing to look at by itself. [purposely mispelled it] He is looking for more bears. why ? there are tons of bears out there. just look at liquidity inflows. it is contracting still by institutions. how many more bears do you need ? at a minimum,until liquidity direction turns around, any rallies are for suckers.

Edited by nimblebear, 26 August 2008 - 08:09 AM.

Remember what they say: Never short a dull market. Will "they" be right this time? I don't know but I'm still expecting the major indices to reach their declining 200-day MA's before we turn down. Having said that, some of the indices have already reached - and overreached - their 200-day MA's so the job is half done.

I think we're in an environment of slow errosion, accompanied by constant bottom picking. There is absolutely no FEAR of losing money. VIX is low, put call is low, no one is concerned, complacency abounds. The market is about to rally, bounce, perform the positive action of your choice, any minute now. No worries.

I think we're in an environment of slow errosion, accompanied by constant bottom picking.

There is absolutely no FEAR of losing money. VIX is low, put call is low, no one is concerned, complacency abounds. The market is about to rally, bounce, perform the positive action of your choice, any minute now. No worries.

When i hear those words of....." I would touch that stuff with a ten foot pole"......That will be the bottom....