After being bearish on the market for a while and being short AUD/JPY, oil, and a few general stocks I am finally turning bullish on the markets. All of the usual technical and sentiment indicators point to the markets bottoming and at the very least getting a nice bounce. I look at a composite of indicators including the cboe put/call, percent of stocks above their 50 day moving average, 52 new highs/lows, nyse percent bullish, nasdaq sentiment index, the vix (anything above 35), nyse advancers/decliners, and a sentiment index from sentimentrader.com. All of these indicators show that the market has either bottomed or is very close. So I am now long ATPG, LMNR, HOG, WYN, APL, MO, and looking to purchase some oil and maybe long AUD/JPY.
I will either look like a genius or a fool. The only way I am wrong is if this European crisis worsens dramatically or their is a crash in the Chinese economy. I happen to think the probabilities are low so I am willing to take the risk. The ECB is printing money so that should provide some sort of stop gap measure to the debt crisis in Greece, Portugal, and Spain.
I have noticed that sentiment within the markets has fallen off a cliff from euphoria 4 weeks ago to manic depression. Every one I know is bearish expecting the markets to fall 30-40% more. They say a crash is imminent and now (after a 12% decline) is the time to sell. Folks you do not make money buying at 1220 on the S&P and selling at 1080. But that seems to be the general consensus. I even saw a poll on CNBC where 40% of their viewers believed the DOW was headed to 5000. I would expect this to be the ultimate contrarian indicator because usually these fools are bullish. The Fast money crew is also bearish telling people to be cautious blah blah blah. I remember they were telling people to buy commodity stocks at S&P 1220 and go long oil at 80 because it was going to 90. Talk about leading the sheep to the slaughter.
I have a hard time believing that the market is going to crash or fall dramatically if that is the general consensus of all market participants. This is a paranoid schizophrenic market that has serious emotional problems. The only way to make money in this market is to buy market depression and sell market euphoria.
Black Swan Insights