“Prior to the Great Recession it was quite easy to use sentiment as a contrary indicator. When market players were highly bullish that meant they were heavily invested and there wasn’t much buying power left to drive the market higher.   You couldn’t time the market with any great precision but the concept tended to generally work.

Over the last five years the logic of sentiment as a contrary indicator has broken down.  Most notably it simply isn’t the case any longer that when there is a high level of bullishness there is a lack of buying power.  The buying power never seems to an issue these days. In fact the biggest problem for many bulls is that they are chronically underinvested.  They simply can’t put money to work very easily even though they are very positive about the market.

This is probably one of the biggest problems for hedge funds in recent years.  They have chronically underperformed not because they are too negative but because they don’t seem to have the sort of entries that they would prefer.   Many fund managers just can’t chase V-shaped moves even when they are bullish.

The point is that sentiment polls not only aren’t very helpful but they can be downright misleading these days if you try to apply standard contrarian logic. The mood in the market is different now from any time I can recall in the years I’ve been trading. There is an odd mix of bullishness and skepticism.  Market players constantly worry that the market will run away without them but, at the same time, they aren’t very optimistic about the economy or the potential for the market.  They buy because they feel they have no choice not because of strong bullish convictions.

The action today is a good example. We continue to slowly move higher but other than the usual cheerleaders on television there isn’t any wild bullishness.  Market players are making buys but don’t seem very happy about it.”

These charts are all courtesy of the fine folks at StockCharts.com. I decided to post them all tonight since we now have the technical difficulties in posting the charts solved.  As you can see, the three equity based funds are showing strong buy signals with the S Fund being the weakest of the bunch. It has more work to do to repair the damage that was done during the recent downturn in that its 20 EMA is still below its 50 EMA. The chart for the F Fund has deteriorated to a Neutral signal with the PMO, the MAC D and the Williams%R all giving sell signals. It lacks only the 5 EMA passing through the 20 EMA to generate a sell signal. However, this fund may bounce as the Williams%R has bottomed out. We will watch to see if a bounce develops during tomorrows trading.

This is one of the toughest markets I have ever dealt with. I will continue to pray and put my trust in God to guide our group as he always has. Give Him the praise! Have a nice evening.

God bless,

Scott