“I’m just sitting here patiently, waiting for your call...”
When October began, market sentiment was extremely bearish, with an abundance of “sell now” recommendations. In the past three weeks, the markets have taken off on a blistering rally, although it has been a choppy one with high volatility. So how will we know when the market has overshot to the upside, at least in the short term, if not the intermediate term? That’s easy, when the rally is about to exhaust itself, the pundits will be falling all over each with giddiness and buy recommendations, claiming they called the bottom on October 3rd. The CNBC talking heads will be gasping for breath, hyperventilating, as they remark how the market has taken off and is now climbing a stairway to heaven. The ultimate signal that the rally is long in the tooth and about to end will come when the same prognosticator who expressed extreme bearishness at the bottom a few weeks ago, espouses euphoric sentiment, then claims he said to buy when he screamed “sell” at the lowest levels.
I don’t think we are at the point yet where the market has become overbought enough short to intermediate term that a pullback is about to take place. The market was deeply oversold when October began, with the indices all about as far below their 100 and 200 day moving averages as they get, except for events like the 2008-2009 financial crisis. There is still some skepticism, we don’t have the giddy euphoric sentiment that accompanies overbought market conditions, but it is being built. From my perspective, there are several hundred points of Dow upside and several percentage points in the other indices before we will see that occur. Watch for CNBC to stick Elaine Gazarelli, Abbey Joseph Cohen, or someone else of that ilk on the screen to proclaim they are “constructive” on the market going forward. The sentiment will be extremely unbalanced. They don’t ring a bell at market tops, but they do make an overwhelming bullish call.
Until then, I’m just sitting here patiently, waiting for your call....(double entendre intended).