Some More Thoughts on Long Term Sentiment

Cullen Roche has a good post up discussing the lack of bearish sentiment in the market right now: Where Did All the Bears Go?. And I think this is right on track. This recent wave up has been a real bear killer combined with the fact that the Dow Industrials are at a new all time high.

This is yet another reason why I don't think the end of this wave will be 'the top'.

As I have said many times over the past couple of years now, we need to see some serious internal divergences take shape to even begin to consider that we have seen the top. And so far, absolutely none of them have manifested: http://marketthoughtsandanalysis.blogspot.com/2013/01/update-on-long-term-projection-011913.html.

So this chart caught my attention and is telling the same story that I have been saying. If you indulge me in some interpretation, which I lay out below:

I think we are still somewhere in 'Phase 2': sentiment has shifted and the investor community is seeing this bull market as a bull market.

Now we could be at the end of Phase 2. But even if that were the case we should still expect another leg up to make a higher high after the next correction to show a divergence in sentiment. We would also need to see confirming divergences in a number of other internal indicators.

So in short, I am still not expecting the market to have peaked with this peak.

Mar 9

No posts recently because there is not much to say. We had a very sharp volatile sell off at the end of Feb followed by an even sharper rally out of that low. This spike low and the subsequent rally out of it looks and feels something like the March 2011 correction going into the Apr-May 2011 rally and the March 2012 correction going into the Apr 2012 rally. I have no clue how it this plays out, but the seasonality plus the fact that this was a relatively small correction relative to a 3+ month surge makes me suspicious of a more severe correction in the near term (next several weeks).

However, I still maintain that we are not near the end of this cyclical bull market and that we have further to go. I am still not looking for 'the top' here.