Monday, November 09, 2009

More bearish than at 866

Here is a chart showing the weekly sentiment survey conducted by the American Association of Individual Investors (chart courtesy of The red bars represent the percentage of responses that were bearish, the green bars represent the bullish percentage, while the purple bars at the bottom express the ratio of bulls to bears.

Notice that the bearish percentage is currently higher than it was at the July low of 866 while the bull/bear ratio is lower than it was then. This is one piece of evidence that makes me think the November 2 low is comparable in importance to the July 8 low. If I am right about this then the market has probably started a rally that will carry well past the 1120 level I have been mentioning. How far past 1120? The most optimistic projection would be to the 1240 level. This would put the next top as far above the 1099 top as the 1099 top was above the June 2009 top of 957. Cutting that 140 point difference in half still projects to 1170.


janet said...

Excellent detective work Carl!!

Ron said...

Hey Carl,

Good information.

Thank you.

Bill said...

With all the stimulus from the Fed and a weak job market it's not surprising.

The Fed will continue pumping money until the job market improves (3 or 4 months of solid job growth) and this is at least a few months away.

So this bull has legs.

Win said...

I agree. Good work. Thanks.

Narayana said...

Hey Carl, what about the fact that we had no Demand Shock to support a rally above new highs?

jeff said...


Thanks for the continued valuable insight.

I've never seen you talk about it...given your bearish stance on the Euro and oil, are readers to assume there will be a major divergence between them and the S&P? Why? The S&P has a lot of oil components and the equities and oil/Euro have basically been marching along in sync since the March lows. If the S&P is to continue its merry ways, oil is going to need to join along. If this relationship continues, either your crude/oil predition(headed down) or S&P prediction(headed up) is sure to be wrong.

Could you share any thoughts with your readers on this relationship?

Wags94596 said...

By the way, it's not too difficult to see the continued correlation between the weaker US Dollar lead to higher stock prices. Today is a great example of this.

It's really just about the only inter-market relationship that an equity TRADER needs to watch.

michaeld said...

Excellent info and certainly consistent with what the market is doing and it is likely to do.

Volatility spiked 10 days ago, but it looks like it was a false flag and that is why we are moving higher.

It is increasingly important to time this market and profit both from the upside and downside when it comes.


Its daily DJIA index trading signal is up a respectable 68% for the year (as of November 1, 2009) and it is free of charge for individual investors.

TradingNuggets said...

Proof is in the price...and this market refuses to roll over.

It's a total disconnect between general economic condition in the US vs market/trader action.

Thanks Carl,

Narayana said...

I noticed that when people agree with my posts on my blog, I'm usually wrong. Seems to be happening here. We'll see what happens.

Wags94596 said...

The market frequently disconnects from general economic activity. In fact, this is nothing new and one can make a pretty good case that the equity market has very little to do with economic activity given that it is a discounting mechanism.

If there is ONE PRIMARY DRIVER to equity prices, it is excessive liquidity in the monetary system. The sooner one learns this, the more successful a trader/investor one will be.

The economic "backdrop" is just a bunch of noise. It is a distraction from tracking and confirming PRICE and the TREND.

This is what the "perma-bears" continue to miss.

twc2009 said...

Hi "wags94596":

Appreciate sharing your insights. I always look forward to your comments.

I would like your take on the (5)five "bear traps" we have seen starting July, 09. Is it something you would expect in any market - Bull or Bear?


extrader said...

Todays MAX HIGH is 1095... dont know if the market has legs to go that high, but it has been a slow steady grind up!

Carl, congrats on ur call towards 1120!

TradingNuggets said...

(IMHO) The retail trader has not participated in this rally. Those traders who rely upon their performance to get their yr end bonuses will continue to drive this market higher inspite of of the general economy.

Market Owl said...

Market looks set to squeeze as many shorts as possible. The chase for performance started in earnest today, but I don't think it will last long because we're already near 1100. We could get to 1120, but I doubt that we can go higher this year based on how much effort was spent during earnings season and the negative divergences with small cap underperformance and lagging breadth.

Wags94596 said...

Lagging breadth?
Have you actually looked at an NYSE A/D line chart lately?