In our last submission, we noted that thanks to our familiarity with the Wall St. Sentiment Survey (available here on StockCharts), we were able to discern a pattern that was closely linked to short-term reversals, and predicted just such a reversal, with the caveat that whatever strength we saw would likely be followed by some more weakness into October. Our insight served us well as we pretty much nailed that pattern.
This last weekend, we noted another pattern being displayed by the WSS Survey data that is ordinarily quite useful. We have found that, over the decades, when the Surveyees are leaning heavily Bearish (as they were this last weekend), the market was very likely to fall, immediately. The catch is, this pattern ALSO is highly correlated with a reversal right after the immediate weakness. No sooner had we published this reminder on Sunday afternoon, than GLOBEX opened down hard. To our eye this weakness was to be bought, though perversely, the decline was reversed by Monday morning and the market rallied.
Overall, however, this heavy lean is indicative of entirely too much Bearishness. The S&P is but a spit away from all-time-highs. Cumulative Breadth is already at all-time-highs. Small caps are showing good relative strength. The momentum is positive, as is the ITBM.
Even the message board sentiment that we monitor shows more traders aggressively shorting than long, despite the positive trend and breadth. In fact, we surprisingly had a Buy signal for Tuesday.
Folks, we've been at this since the early 80's. The one thing that we've learned is that barring some major or systemic issue for the market, the end of the year is when you want to be long. December is seasonally very strong. This is NOT the time to be fighting the trend or breadth.
They might well kill this market out in January. There's no telling from here. I have some thoughts on this, and I'm monitoring some useful, non-traditional indicators that we believe will give us ample forewarning of any serious risks to the financial system. For right now, there appears to be nothing of adequate significance looming that is likely to offset the prodigious positive seasonality.
Have a prosperous week, and wonderful holidays!
Mark Steward Young
Wall St. Sentiment
http://www.wallstreetsentiment.com/trial.htm
