Saturday, February 20, 2016

Wind in the Sails?

As Columbus, Magellan and many other sea voyagers knew long before the advent of the internal combustion engine, getting anywhere in a sailboat is a lot easier if there is wind to fill the sails.

In our YouTube videos, we detailed how Bullish Sentiment started 2009 at only 25.3% bullish among several categories of investors (individuals, institutions and newsletter writers). It is the point marked "C Wave Low" in the chart that follows.

Through the course of 2010 through 2014, bullish sentiment reached a not-seen-before extreme level of 66% bulls, and in some cases stayed above the 60% mark for a full 10 weeks, before turning a bit lower.

We further detailed that at the May 2015 high, bullish sentiment had been averaging over the 50-55% level in an uninterrupted fashion for nearly 20 weeks! This was one of the key reasons we took a stance opposite to the market pundits at the time, and correctly saw the development of the daily ending diagonal triangle in the major indexes.

Let's go ahead and update our sentiment chart, below.

As you can see from the chart, the percentage of bullish sentiment isn't running at 50 - 65% any more. Is it? In fact, last week hit a recent sentiment low of 37.1% bullish!

So, let's review. Many blogs, websites and news magazines (including, for example Barron's) were very bullish back in May, 2015 - virtually no one but us saw the ending diagonal triangle that would end the move higher. Several Elliott Wave prognosticators and sites were counting 1-2-i-ii up(!) at the time expecting an explosive upward third wave which never materialized. Again, this was when sentiment was 50 - 55% bullish!

Now that sentiment is 37.1% bullish, the investing world has turned sour on stocks. TV pundits now glibly say, "sell rallies? sure!", and some web-sites are counting a full on bear-market lower. Some institutions are "lowering their target" for the major indexes. Oh really? Now? Not in May, 2015 as we did?!!

We on the other hand take a much more neutral approach in the short term. Why would the market facilitate a currently rather lop-sided crowd? Can the market move lower from here? Sure! There are wave counts we have published that allow it. But, like those sailing ships of old, the real question to ask at this point in time is, "which way is the wind blowing?"

We can show you the weather-wane, but that decision is up to you!


  1. Enjoy reading your posts.. Well balanced. Case for both bull and bear scenarios remain alive! I think that is the game plan till it isn't. The market will do the expected in unexpected ways. The train will leave the station with very few on board IMO.. Given the extreme negative sentiment it makes no sense to drop from here.. just my 2c.. Anyways thanks for your updates.

  2. Considering how long bullish sentiment lasted, we could just as easily see a long-term bearish sentiment.

    1. Yes, the exact timing is certainly a consideration. Sometimes and usually market bottoms can be and are shorter than tops.