Tuesday, May 30, 2006

A Bear in the Woods

Here is the cover of the current issue of The Economist magazine. It shows a bear peeking out from behind a tree in the woods.

As you know I think the news media are in the business of telling people what they want to hear. So this cover story is more evidence of a high level of bearish sentiment towards the US stock market. This evidence is consistent with that provided by the Rydex cash flow ratio and by my reading of the front page of the New York Times.

The correction from the May 5 top in the averages still shows only a single down phase so I expect another drop which will carry the S&P cash index to 1230 or so. Because bearish sentiment is already so pervasive I think that a drop bigger than this is very unlikely.

Since the break from the early May high has been only 6% this high level of bearish sentiment also makes it very likely that the averages will make new highs for the bull market within a couple of months.

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