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.

Feb 25

Crazy busy day, could not watch the market in real time. The 60-minute system issued a sell signal on 2/20 and that has stayed intact (and re-confirmed today ... boy howdy). But the Daily System also issued a sell signal today. However, since I could not send the signal out in real time, I will enter the signal at the open tomorrow. Just letting you know the situation.

Feb 15

I have watched and posted on long term VIX divergences (and the fact that there has not been any in this cyclical bull market) many times. [See here, and here, and here, etc.] This continues to be one of the reasons why I think this cyclical bull market is not over, nor are we near the top of it. Once we start seeing a VIX divergence of >several months (combined with other internal indicator divergences that I have discussed previously), then I think we would have a setup for a major top. But we have nothing even remotely of the sort now.

I have also posted about the fact that short term VIX divergences very often accompany the short term (Minor and Intermediate degree) pullbacks in this cyclical bull. Well, today the potential short term VIX divergence that had been building since the end of January has evaporated. See below. This rally still wants to continue. My guess has been to 1530, but maybe that should now be qualified with 'at least'. The prevailing sentiment seems to be 'we are going to get a pullback any day now' and rallies love to grind higher in that kind of short term sentiment. We'll see how the next couple of weeks play out, but I am certainly not going to be surprised by a slow drift higher.

Feb 8

This move looks like it was consolidation after all. My target of 1530 from last week is still in effect. We'll see if the market can muster a rally much beyond that on this wave (of which I have my doubts).