The SPX (S&P 500 index) has been on a breath-taking ride off the October lows. There aren’t many bears left, and now it is hard to find a newsletter that isn’t calling for the SPX to reach 2100. These are the same newsletters that just two weeks ago were pounding the table that we were starting a new bear market.
We mentioned that a low was coming on October 15th when sentiment reached an extreme bearish reading. When timing the markets using sentiment and the majority is bearish, you want to start looking for a rally. Obviously, when the majority is bullish, you want to start looking for a drop.
Look for that to happen now. Yesterday, investor sentiment turned very bullish, which would suggest a move down is pending. But don’t mistake this for anything long term. You need to just stay focused on what is happening now and forget about the big picture.
Woody Dorsey
“Whenever a capitulation occurs like at the Black Hole in Mid-October, risk appetite and portfolios become cleaned out and are recycled. Thus they can begin completely new moves that having nothing to do with what happened before.”
Bull markets can be born again or vice versa. Don’t be seduced into believing that this possible downturn means anything more than a short-term drop. Moves that took months are now taking weeks and there is a lot of money to be made fading the investor sentiment when they all run to one side at once.
