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Sentiment Overview: Insiders Decisively Bearish

Looking at the Dow Jones chart from 1900 to present.

A massive rally started in 1922 that topped out into 1929. 7 years of rally that resulted in an extreme meltdown toward 1932. That 7 years rally was presumably a part of the rally since the 1800's. Unfortunately, I do not have chart that shows how the rally progressed during the early part of western industrialization that culminates into the topping process of 1929.

A massive rally started 1932 toward 1966. A 34 years of rallies that was blunted by Dow Jones 1,000 ceiling until year 1982.

Then from 1982, another massive rally toward year 2000. An 18 year rally where Dow Jones suffered another minor meltdown; then a minor 5 years rally culminating in a major meltdown of 2007 to 2009. Spx went into a double top in year 2007 unlike Dow Jones which produced a headfake into 14,200 of Oct 2007. Definitely, the rally from 2002 to 2007 is a bear rally rather than a bull run and must be considered corrective rather than impulsive.

Based alone on those massive rallies and massive meltdowns taken in their context; we should be heading toward another multi-decade rally after this meltdown that is comparable to that of 1929 to 1932.

Sentiment Overview: Insiders Decisively Bearish

More likely extreme bullishness at market tops after several years of rallies is a good contrarian indicator.

The last rally took 5 years from Oct 2002 to Oct 2007 before extreme bullishness took it's toll.

Before that, the US went into 20 or so years of rally from the early 1980 to year 2000.

How many years are we in a rally now?

Extreme bullishness is needed right here near the bottom in order to overcome extreme pessimism or massive sceptism among market participants.

The Dollar Situation Is Getting Clearer

Clearer or getting more confused?

The dollar rallied for 18 days and made off with 5.75% gain. Euro$ sold off because of problems with Dubai and Greece. Euro$ loss is US$ gain. Plain and simple.

For the last 5 days; oil made a rally in tandem with the US$. And oil made off with 8.89% gain.

Gold went down 9 percent from the last high to the last low as dollar rallied due to fear of carry trade call back by the Fed.

Spx did practically nothing during that period consolidating the 12 days rally off Nov 2 gains despite all the hoopla by sensationalist traders trying to enforce the view that the broad index Spx is going to melt down if dollar rallies.

Technically speaking; the last sell-off for DX was an a-b-c down preceding a minor a-b-c rally. That is basically a pattern used by expanding flats. And the us$ is now at the C-wave target of 78.40. A potential bearish expanding flat.

Unless and until the US$ can show it can surmount a potential bearish expanding flat at the bottom of the daily chart. The direction is still definitely down.

Not something I can hang my hat on.

Why Merrill Lynch Is Bullish on 2010: Foreseeing a Burst of the Pessimism Bubble

I believe economists tend to be wrong at the top or the bottom parts. But basically, many will also be correct most of the way. Just not the top or the bottom where many traders care the most since they prefer to time the markets in real-time and not with delayed data.

I attend a trading website dominated by rabid bears and perma-bear traders on a daily basis.

It is not easy trying to tell them that this rally is being supported by the most current positive economic fundamentals since late February and that the gargantuan problems create in the last 2 decades leading to the start of the collapse of the tech sector in year 2000 and that of the housing sector of year 2006 are getting better if not being prevented from getting worse.

It takes two whipsaws to learn a lesson most of the time. The meltdown of 2000 to 2002 did not teach us the lesson, more likely because of the 9/11 incident shifting policy makers' attention from economics to wars that agravated the situation. This massive meltdown of 2007 to 2009 should be more than enought to teach us a lesson. 9/11 Part II or not. Just look how the Dubai and Greece debacles were set aside in a hurry. Investors now are trying hard not to panic in any bad news coming their way. Traders do react instantaneously; but that is their nature.

Technical patterns are much earlier to form before most economists can get a handle of the situation. Traders do learn fast. Except for the few rabid bears and the perma's.

Since April to July, the technical patterns were very weak leading to the conclusion by most traders that the rally off March 2009 was a bear bounce rather than a true recovery. But the vertical rally of July to August caught them by surprice.

Since August, the technical pattern was of confusion but the dominating factor was that the rally was not getting weaker as weeks passed by but rather gathering strenght as indicated by the positve type of ongoing corrective patterns. It was a different type of correction and does not happen often; a trending correction of higher highs and higher lows instead of a counter-trend type of correction that usually happens which is the lower high lower low type. Hence, most traders cannot understand the low daily volume printout from August to November.

That corrective pattern has basically completed in November 2; and the 12 days rally happened as expected. Not a searingly hot rally since a rally off a 3 months correction is supposed to be composed of series of small rallies and corresponding minor corrections or consolidation ranges. It is better understood using Elliott Waves analysis than any other types of Technical Analysis.

In all probabilities; we may have already completed the first consolidation needed to support further rallies from the first rally off November 2.

Conservative target for the next rally is 1152 to 1170 range with the upper range as indicated by the most recent price structure on the daily chart.

It may or may not change depending on whether the current structure will morph into a prolonged consolidation range or goes straight into a sustainable rally. It is sustainable in that the last rally took 12 days and the ensuing correction or consolidation range took 14 days before the last 4 days of rally happened. 14 days is good enought to sustain another rally but will not be confirmed until the next rally off the last 4 green days actually happens. For now, the bulls are trying to consolidate the last 4 days rally in preparation for the next rally intraday.

Intraday using the 30min chart; a rally toward 1150 to 1164 is sustainable. But that will depend mostly on what will happen today after the FOMC meeting.

For now, the bears are struggling to form a complex Head and Shoulders on the 240min chart that is also visible on the daily chart with the first right shoulder resistance of 1114.53 that they immediate took advantage yesterday with the Spx.

But Spx or SnP500 is the lone ranger for the bears being affected mostly by the weak financials sector. Dow and Nasdaq are not forming such patterns together with their cousin DAX.

We are good to go for 1150 year-end target as was initially projected by the big guns such as GS a few months ago.

Most current price structures of the daily and intraday charts are capable of supporting such target and the fundamentals are not bad either.

First Stocks, Then the Economy...Is Job Growth Next?

Like they say, unemployment is a lagging indicator.

So, if you bought stocks based on lagging indicators, you will be left far behind.

That does'nt mean the top is already in place. More likely, the top for the current rally off March 2009 is just starting to be put in place.

More rallies to come in the months ahead.

Of course, rallies will have their corresponding corrections lasting weeks and months on many occations and sometimes years like the one we've just got.

After the next top has formed, we should suffer another recession in late 2010 or 2011 perhaps? Nothing goes up forever too, they say.

Mini-recessions do occur once in a while every few years while the great ones happen every few decades. Those are the buying opportunities for long term holders.

Small corrections will take less time to recover and big corrections will take much more time to recover. We had a big one last time, it is going to take a lot longer to recover too, not mere 9 months.

Each to it's own. Those who cannot or don't have the resources to time the markets will do whatever they can to join the party when it comes their way. Those that can may or may not be successful timing the markets correctly. But that is just the way life goes. There are ups and downs.

We going up right now, enjoy it while it lasts.

Economic Indicators Suggest Investing Caution

There are also some technical warnings that the top can be near.

Lets look at Dow Jones in particular:

- Dow monthly chart is now printing a fast MACD reading in the extreme of 1,170 by now. In May 1999 Dow was able to print 1,474 at a price of $11,130 before it topped out in Dec 1999 at a price of $11,750 with a divergence macd reading of 537. In June 2007, Dow was able to print a new momentum high of 1050 before the topping process happened in Oct 2007 at $14,200 price tag.

The good news is that when the momentum indicator such as the fast macd made a new momentum high; it will take a divergence signal for shorts to enter in or for big-time traders to start selling. Which means, Dow will have to print higher high prices above the last high of $10,513 for a divergence short to take effect. Sometimes, it can take several divergence signals before a bigger correction can happen or a sell-off/meltdown can start, which can take a very long time considering that it is the monthly chart that was able to print a new momentum high this time around.

- Dow Jones 14-month stochastic is now entering the 80 percent range which is the upper range. In a cyclical run, the stochastic will go for 100 percent but seldom gets there anyway before going down together with the price. That is bad news to many stochastic traders, it means Dow Jones is entering the over-bought territory and will soon go back to over-sold territory once it finished it's business above the 80 percent mark.

The good news is that a penetration of the 80 percent mark can result in an explossive rally that can last several months since we are using the monthly charts.

Here are some salient points:

- Dow Jones weekly RSI went down below the bearish territory of 40 percent since Sept 2008 and never left that territory until March 2009. During that period, Dow simply went into a melt-down thru and thru from a high reading of $11,483 in Sept 2008 toward the last low of $6,470 of March 2009.

These past few weeks, Dow Jones was able to penetrate the 65 percent mark of the weekly RSI. Above 65 percent is the bullish territory. Sometimes, but not all the time, it can stay up above 65 percent too just like the way it did staying below 40 percent. Which means, a sustained melt-up similar but opposite to the Sept 2008 to March 2009 melt-down can happen too before Dow Jones goes back below 65 reading and into the unknown territory in-between 65 and 40 percents. Last low reading was $9,879 before Dow Jones weekly RSI was able to break above the 65 percent mark. We still don't know how far a potential melt-up can go and for how long.

- Dow Jones 14-week stochastic is now gliding above the 80 percent reading. A very encouraging sign in most cases. Once this gliding path happens; it can take several attempts to push it down below 80 percent with resultant higher high prices to happen later on. Most of the time it will take 2 to 3 push downs of the stochastic below 80 percent followed by another gliding above 80 percent and subsequent higher high prices to happen before a final push down that drives the 14-week stochastic below the 20 percent reading can happen which corresponds to a major correction or a sell-off. It can take a very long time before a major correction or a sell-off can happen once the 14-week stochastic starts gliding above the 80 percent mark.

Momentum indicators do not provide a method to find potential price runs based on the different types of rallies and their corresponding corrections or consolidations ranges.

Elliott Waves analysis does provide this facility. Read my previous posts if you want to know what price projections EW is indicating now for the broader index SnP500.

Equities Update: Volatile Day Leaves Week's Gains Intact

The early morning price actions today told a lot of what could be brewing underneath.

After the jobs report release:

ES or SnP futures jumped up together with the beliguered financials and oil.

What was amazing was that the US$ jumped up too - courtesy of Euro$ dumpage since Euro$ affects the US$ more than anything. Euro$ used to keep pace with the ES futures in the past few weeks and months. Not today.

What was more amazing was that Oil kept jumping up before the open despite initial hesitation when US$ jumped up with no hesitation.

And the most amazing "unexpected" event was gold initially trying to catch up with ES since gold kept following or going ahead of ES most of the time in the past few weeks; but then gold suddenly melted down. Unexpected if we don't know that gold was due for a potential dumpage in exchange for liquidity shift-over to the US$ and the sudden jump in interest rate hike projection for April from 2% to 20% probability. Gold suffered the liquidity recall jitters and the dollar jumped up. Also, the 1200 resistance for gold gave lots of incentive to take off some profits. Dollar carry traders are now starting to feel the pinch with the new logic about low Fed rates.

The indeces meltdown right after the open was because US$ kept up it's pace to the upside thus causing jitters among traders who are used to countertrading oil and ES against the US$.

Well and good. A little consolidation later, and a late day recovery rally was able run without the US$ melting down. Courtesy of Transports, SOX, and the Financials saving the day as they refused to print new lows for the day while the Euro$ still as crippled as the day has started.

Now, the US$ has a good chance to rally together with the SnP, Dow Jones, and Nasdaq. Albeit with lots of hesitations and coutertrend runs or that the runs are starting to narrow with lesser dollar meltdowns during days of Spx rallies and vise versa. In the longer run as the run rates narrowed, they can go up together if not daily, then as the weeks progressed and traders start to accept that a strong economy begets strong currency. For now, the US economy is weak but the dollar is weaker still.

A weak but recovering US economy will help oil to rise further toward the $86 to $90 target range, if not $106. Seasonal factor and a global Christmas rejoice of averting Great Depression Part 2 will help oil price to go up.

Since the European economy seems to be not performing as expected; the Euro$ can start going down toward the 1.15 area and the US$ can rally accordingly. Caviat is that Euro$ still has a small un-resolved 5-th wave up on the weekly chart that projects a potential rally toward the 1.522/5 area where the weekly and monthly fibonacci resistance cluster resides.

In the end; I believe the good jobs report of today will provide the catalyst for an early Santa Claus' rally toward 1150 to 1168 range for Spx - despite traders' confusion regarding past and present relationships of dollar, oil, and the main indeces. A gold meltdown will more than help the rally for SnP, Dow Jones, and the Nasdaq. Profits from selling gold will provide extra liquidity for the indeces.

For gold, see my previous posts.

Yen, Gold and the Perfect Desert Storm

Gold may have formed a triangle prior to the vertical rally on the daily and weekly charts. The triangle started forming Feb 02, 2009 and most probably ended Aug 17 or Aug 24.

Triangles usually result in a vertical run or "thrust" after the triangle has formed.

For a non-limiting triangle. Usual target is 1193 to 1197 with an upper limit of 1358. Not much help here with the target range since it is too wide for comfort and can't be narrowed down. For now, gold is at or approaching the usual target range.

Triangle scenario before the vertical rally will make the whole pattern on the weekly and monthly charts a potential expanding flat with target to the downside of 550 area if the usual upside target holds and gold starts going vertically down for 6 to 8 months.

For now, the triangle scenario is not confirmed. Confirmation will come if gold goes back to the apex of the triangle which is at 970.

Until then, trend traders will try to keep chasing the gold run on pullbacks even on a major pullback back to the old 1034 major resistance which is now a major support. Only a hard break below 1034 support can trigger a panic selloff.

Happy hunting, if you can make the correct timing. Or get crushed if the triangle scenario does not pan out as expected.

Market Volume: Still an Unanswered Question

You really have to study volume in the context of Elliott Waves analysis.

During rallies and selloffs, maximum volume happens during the end of the 3-rd wave and spike again during the the 5-th wave with less amount than the 3-rd.

Study the monthly chart of SPY which is one of the easier to study and which is the one that represents the broader index SnP500.

The highest volume spike happened in Oct 2008 and price went lower in Nov 2008. That means the iii-rd of the 3-rd happened in Oct and the 3-rd ended in Nov.

There is also a volume spike in March 2009 but of less quantity than that of Oct 2008. Then followed by tapering of the volume in succeeding months during the bear market bounce or recovery depending on which side of the fence you belong. It means the 5-th and final wave down has been completed. Some call it divergence which happens most of the time at bottoms.

On the monthly and quarterly charts; SPY is clearly a double top pattern. We call it one of the several forms of Flats or A-B-C patterns. SnP500 is a Normal Flat while Indu or Dow Jones is an Expanding Flat.

Flats do have violent C-waves with expanding flats having more violent C-wave than that of normal flats.

More than 70 percent of charts do produced violent vertical C-wave downs in the past in any timeframe, in any market, and in any country. And violent C-waves do produce violent volume spikes too. That is where the maximum volume happens, at or very close to the final bottom of a secular bear market or any particular stock for that matter that went through a progressive sequence of corrective sell-off (A-wave which is years 2000 to 2002 for SPY, bear rally (B-wave or 2002 to 2007), and final capitulation sell-off (C-wave or 2007 to 2009) to complete the A-B-C pattern or a Flat in EW terminology. C-wave is the double dip, technically speaking for flat patterns.

The ensuing bounce or recovery after March 2009 is being hampered by low volume. That was, is, and will be the usual case in most recoveries after a violent C-wave sell-off. There will be some volume spikes but they will be far from as strong or stronger than those produced during the C-wave.

Violent C-wave creates massive shock waves that stun market or stock participants that can last for a long long time. It happens all the time in stocks and indeces in different time frames and with different degrees of impact. But we can't seem to recognize and learn them despite years of experience.

True volume comparable to those produced by the C-wave down will appear only far far above the double top or the last high of an expanding flat when the 3rd wave rally happens. We are presumably still in the 1-st wave up with perhaps 70 to 80 percent probability. Some A-B-C patterns do morph into triangles, complex flats, or complex corrections when problems don't get solved within certain time limits.

But for the sake of trading or investing, buying the C-wave of an A-B-C is one of the highest probability ways of making money and the most common or the most frequent occurence.

But then it requires a study of Elliott Waves to learn and can take years and thousands of charts to finally learn a simple pattern such as what we have now for Dow Jones and SnP500 due to the complexity of the other 20 to 30 percent corrective patterns that intrude with the recognition of a simple pattern. Only after many years and thousands and thousands of chart patterns do we recognize that the simple patterns dominates over the complex ones. K.I.S.S. we say.

So don't expect volume to pick up commensurate to Oct 2008 and March 2009. Volume spikes of equal or greater magnitudes will happen far above 2007 levels during the 3rd wave part of an ongoing rally. Consider 1932 as the start of the count when Dow Jones practically died at $42 and resurrected toward $14,200 then suffered a heart attack.

For August to Present volume conumdrum; please see my previous comments.

Hope this helps.

Reality Hits: Q3 GDP Growth Breakdown

You are wrong!

There are 2.5 Billion consumers in the developing countries alone including the BRIC. That is 2,500 Millions of potential customers by international based manufacturing companies that are US-owned that has re-located into the developing countries since the early 2000 to take advantage of cheap labor abroad and be able to compete anywhere in the world without the shackles of exorbitant US labor costs.

And that will funnel back to the US government tax receipts in the future as the developing countries start their recovery sans the "Made in the USA" financial crisis.

2.5 billion consumers vs. 300 million they used to cater to.

Ask the US government for a commonwealth policy once those giga-corporations start repatriating their profits in perhaps 2 to 3 years time since the US will remain shackled with high unemployment rates.

Those giga-corporations are not coming back to the US after spending trillions relocating their operations to the developing countries.


On Oct 31 10:07 PM DormRoom wrote:

> Most of you bears use a 'stack the deck' argument. You pick and
> choose data to suit your argument, while ignoring leading indicators,
> which point to a recovery.
>
> Look outside the U.S (except Britain), and most of the world is in
> a modest V-type recovery. But SA commentators are so U.S. centric
> they ignore the other 750 million+ consumers outside the U.S.
>
> S&P500 @ 1214 by year end. see you there.

Reality Hits: Q3 GDP Growth Breakdown

Most analysts attributed the 3.5% GDP growth to the stimulus program and once the stimulus is removed, GDP is still positive but not stunning. Underlyings, even by removing the stimulus lipstick or makeup, is now improving with consumers started to spend as much as they did last year.

The question is: When will the stimulus program be removed?

As far as I know, the $787B package is for 2 years of stimulus program that has started last April 2009 after it was approved under the Obama Administration, if my memory serves me right.

Q2 stimulus kick off was able to turn GDP from negative to positive. Q3 stimulus turned it into a stunner.

Two quarters with 6 more to go.

Bye, bye Great Recession!

The 'Buy Anything' Market

FEAR of being left behind turning into PANIC buying?

Those are the opposites of August/September 2008 when fear of economic implosion turned into panic selling.

This ongoing 2 days rally is attributed to the daily 50ma support which was at 1020 at the time and the supportive role of August 9 high of 1018 or 9439 for Dow Jones. They formed a confluence zone of supports very hard for technical traders to not go long and buy the run down.

This could be the last chance to get long after a long long wait for a reasonably deep pullback that never came as we survive more on shallow pullback diets since March 2009.

That is good.

Regular shallow pullbacks keep us trim and healthy instead of getting obese with time during deep and prolonged pullbacks that tend to end up to the downside as more traders and investors bail out of the markets due to prolonged digestion of time with no rally.

We rally a little at a time and take appropriate price corrections and time consolidations until we are ready for the big one. Meanwhile, we keep ourselves lean and mean by not getting obese with excessive time consumptions going nowhere that usually means corrective or bear rally rather than a bull run - and thus results in further run downs most of the time.

Are we ready for the big one?

Projected target for this run is 1090 to 1110 for SnP 500 before we go for either 2 to 4 months correction similar to what happened in early May high to early July low.

Or, we go into a massive meltdown lasting 5 to 9 months towards 767 to 680 usual target range for a capitulation selloff.

Or, we go into a massive time consuming A-B-C corrective pattern that can last 8 to 21 months that should break below 827 but less likely to break below the last low of 667.

But I prefer the current potential setup of a Running Triangle on the daily chart that has formed since August 9 and has completed last Friday or Oct 2.

This triangle is a rare occurence and is a virtual unknown to most technical analysts.

But it has a potential to giddy up the markets toward 1165 or even toward 1260 minimum if market participants started a panic buying spree off the coming earnings season.

So watch out; maximum allowed rally for this run is 1110 based on usual Elliott Wave counts of 1-2-3-4-5 up from the July low of 870 using the daily chart.

BUT - if we break 1110 with force in the coming weeks, the next target will be 1165 before we get a hang-over and go down as fast as we go up from the daily 50ma support.

OR - if the 1165 got broken again with force; then expect 1260 the next minimum target and the quick and dirty target will be 1318 before we require a major correction that should last 2 to 4 months.

The last scenario is the best scenario for the bulls in order to achieve sustainable recovery rate of the Oct 2007 high of 1576 for SnP500 on or after September 2013 with 2014 limit time run. The longer it takes to recover toward 1576, the more time will be consumed and the more obese the market participants will be consuming massive time with lethargic actions or rallies.

Lethargy is the enemy of a bull run. A healthy rally followed by a healthy correction and appropriate time consolidation is what makes bull runs healthy in the long run.

Excessive rallies with no healthy corrections and also excessive corrections with no healthy rallies are what destroys a healthy market.


Those are the potential scenarios that has developed from the minor rallies and corrections off the March low of 667 and that of July low of 870.

The markets seldom give us only one choice; there are almost always many potential scenarios most of the time and very few of them happens to be the highest probability scenarios.

In that order, the highest probability scenario is a rally toward 1090 target then a 2 to 4 months correction.

Followed by the Running Triangle scenario that can catapult SnP toward 1165 but would also result in a vertical drop back to 1020 if the bulls cannot muster better than 1165 run.

Unemployment Is Likely to Go Higher

As far as the stock markets are concerned; unemployment rate and the main indeces INDU and SNP do not jibe well.

Dow Jones simply kept going up from $42 in 1932 deep recession toward $300 in 1939 during the Great Depression years of 1933 to 1939 when unemployment kept on climbing toward 25% in 1939.

When WWII started, unemployment virtually disappeared and there was massive demand for everything and anything but Dow Jones went down anyway from $300 high to $100 low.

When WWII ended and soldiers came home looking for non-existing work; unemployment shot up and Dow Jones shot up too from the $100 low of 1943/44.

From your chart; unemployment rate kept going up toward 1992 but Dow Jones kept going up too. When the unemployment suddenly decreased remarkably after 1992, Dow Jones rally was still anemic. Only after 1995 did Dow Jones went into parabolic rally but the decrease rate of unemployment started to taper off toward year 2000.

Now, during the techwreck years of 2000 to 2002; unemployment kept going up to mid 2003, but Dow Jones was already up and running since Oct of 2002.

Unemployment started creeping up late 2006 but Dow Jones only started creeping down after Oct 2007.

Now at the present stage; unemployment is still spiralling up, yet Dow Jones has already gone ahead with a bouncing rally since March 2009.

What is the value then of analyzing unemployment rate as far as investing and finding the correct time to buy or sell are concerned?

I tend to believe that the recovery can happen without a jobs recovery as happened in the past and may even be counter-trend, or should I say buddy buddy trends, to each other as in 1932 to 1939.

1932 seemed to have basic similarity with late 2008 to early 2009 although they may have different reasons and their intensity of effects have definitely different impacts - they were both deep recession periods when unemployment kept on spiralling up but did not end as the stock markets found their bottoms and started to spiral upwards.

We will know in the months ahead if unemployment rate and the Dow Jones will play buddies as in years 1932 to 1939 both trending UP.

It may not be different this time around.

The Economic Recovery That Isn't

Great!

At least we are talking now for the last several months on how to have an economic recovery rather than talking about how the economy might implode if the RTC-type $700B TARP package will not be approved by Congress way back August/September 2008.

The stock markets can then keep on going UP just based on that observation.

Remember 1929 to 1932 meltdown history and the Great Depression that followed the market crash?

Dow Jones went down to $42 in 1932 and the economy went into a severe recession in 1932 just like what we had early this year.

The US economy went into depression in 1933 and more than half of banks and presumably other companies went bankcrupt in 1933 to 1935 Greatest Depression years.

Dow Jones went up from $42 on 1932 to $100 into 1935!

Unemployment went so bad during the great depression of 1933 to 1939 the US unemployment rate deteriorated to 25% by 1939 and Germany got 33% thus leading the way for WW II to happen.

Dow Jones went up from $42 in 1932 to $300 by 1939!

Dow Jones then got a major correction $300 to $100 from 1939 to 1944 because of WWII. A major haircut but never break below the 1932 low of $42.

We'll, perhaps we will need WW III for the stock markets to go way below whatever we will go up to in another 8 to 9 years if we use 1932 to 1944 history as a guide?

Sentiment Overview: Surprising Increase in Optimism

Way back August and September 2008; there was so much fear of potential melt-down that led to the RTC type of rescue effort which is the $700B TARP package.

The half-hearted ping pong Jekyll & Hyde show by the US congress regarding the $700B TARP package led investors all over the world to realize that the United States had abrogated it's role as the trustworthy leader of the world and that realization led to a global stock markets meltdown.

Now, a year later and a "torrid" rally off the March low for 7 months; the same months of August and September is transforming the fear of a meltdown into a fear of potential melt UP. The Fed had taken a full-gear rescue effort and the congress and the President had shown their resolve to rise from their mistakes of Aug-Sept 2008 and had instituted several market reversal actions including regulatory forebearand such as the temporary revision of the Mark to Market rules that was causing so much bankcrupcies in many financial bookkeeping in late 2008 and early 2009.

To have a better perspective of this rally from March to September 2009, we have to look at what actually happened from September 2008 to March 2009 with market data.

It took only less than 22 weeks for SnP500 to drop from 1080 to 667 from Sept 2008 to March 2009.

While it took the SnP500 to recover from March 9 2009 low 667 to the last high of 1080 in Sept 11, 2009 a total of 28 weeks.

So far, the reversal can still be considered "bearish" and/or "reluctant" in that the selloff from 1080 to 667 was consumated in only 22 weeks while the attempted recovery from 667 to the last high of 1080 went a long way toward 28 weeks of climbing the wall of worries.

At this stage, I believe that only a major catastropic event or a series of catastropic events with global implications can possibly cause a capitulation selloff similar to what happened in Sept 11, 2002 that led to the final bottom on mid-October 2002 for the years 2000 to 2002 meltdown.

The bears will need something much much worse than the collapse of the World Trade Center in Sept 11, 2002 to serve as a catalyst for the capitulation selloff since most seasoned traders and investors had already been hardened by their experience with the 2000 to 2002 meltdown; the 9/11 capitulation selloff; the Avian Flu in Asia; the Katrina flooding; the tsunami devastation of Thailand; the catastropic earthquakes in China and Japan; and lastly for 2007 to 2009, the global stock markets meltdown caused by the relentless meltdown of US housing sector that has started 2006 thus transforming the housing meltdown into the start of the banking credit crunch by Jan 2008.

It had been 9 years of bad news since the collapse of the dot.com bubble in the United States.

It will take a lot more devastating news than those of the previous 9 years in order for the "battle hardened" investors to go into a capitulation selloff.


Optimism or an abundance thereof is needed right now to decisively reverse the downside trend and finally remove any doubt in everybody's mind that this rally is a bull run and not a bear rally.

The fast approaching earnings season might just be the catalyst needed in order for the fear of potential melt-up to turn into a panic buying.

If anything else, a luckluster earnings season will only mean we are still stuck in the mud and we might as well spend the rest of 2009 going nowhere.