Bullish Empiricism Drowned in Bearish Context ~ The Risk Averse Alert

Saturday, January 07, 2012

Bullish Empiricism Drowned in Bearish Context

No, no, young Swenlin, your "S&P 500 Generates Long-Term BUY Signal" misses relevant context whose precariousness is well-spoken by the very same measures you cite in making your bullish case...

AAII Investor Sentiment

Rather than contrast the absolute measure of AAII Bulls/Bears (bottom panel) to periods past when the ratio was similarly elevated (see black arrows) — this as basis for a positive market outlook — instead consider the context in which this is occurring. Case in point: the ratio's late-2010 jump coincidentally confirmed the S&P 500's advance to new high ground, post-March '09 bottom. No such coincidental confirmation is registering presently, however. Rather displayed is [undue] conviction absent physical backing registered in dollars and cents. Such disposition is fitting a market more vulnerable to disappointment than a lift still higher.

Indeed, with the case for a market dominated by weak hands well-established, where from will new money come now that sentiment among the market's weakest — individual investors — shows these perennial victims more or less all in and decidedly positive about future prospects?

And how is it that, right here, just prior to a throttling projected to make 2008's appear a walk in the park — this as wave (3) of C unleashes a fury of selling — the ratio of bulls/bears among individual investors would be greater than it was just prior to wave (3) of A which began in May 2008?

Where from comes such fog as apparently masks an approaching tragedy more effectively today than it did prior to 2008's dismantling?

All the more alarming is today's sentiment among individual investors in light of technical evidence revealing long-term underlying weakness not only well-established, but at a very critical juncture that, coincidentally, is very much like May 2008...

$SPX weekly

The PMO's turn positive is no basis for bullishness in the face of its registering a persistent and increasing technical weakness underlying the S&P 500's levitation over the past two years. That's the relevant contextual consideration making the present moment's relative similarity to May 2008 most noteworthy. Thus, does my dire outlook gain considerable substantiation here. Finding individual investors decidedly bullish at the same time is but icing on the cake.

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