Friday, June 11, 2010

Da Bears

Here is the cover of the latest issue of Businessweek magazine. The cover story tells us that the perma-bears who called the crash of 2008 may be about to have their day once more.

I have found that when the news media highlight the views of of money managers or market gurus those views are about to be proven wrong by subsequent market actions.

I think this cover story is another piece of evidence that the current market juncture (S&P 500 closed yesterday at 1087) is a big buying opportunity for the aggressive contrarian trader. Of course aggressive contrarians who have been following this blog and the methods of my book are carrying an above average long position from the S&P 690 level for more than a year now. So for them no additional action is called for.

Tuesday, June 1, 2010

Blood in the water?

Here is the cover of The Economist's latest issue. It shows a "Jaws"- like image of a shark's dorsal fin peeking above the water. This image screams "hidden danger" and the caption, in bold red letters, is "Fear Returns".

I think this image reflects the sudden return to strong bearish sentiment that has been induced by the U.S. stock market's 15% drop in May. It also reinforces the reluctance of the average investor to "get back in the water". So I think it is a strong positive portent of the market's future direction from current levels (Friday's S&P 500 close was 1089).

Along the same lines I want to bring to your attention the latest weekly sentiment survey of the American Association of Individual Investors. It shows 50% of those responding expressing bearish views about the near term direction of the market, the highest level in more than six months. It is unusual to see more than 50% bears in this survey since the AAII members tend to be generally bullish on stock prices.

All in all, I think the current market juncture is a buying opportunity for the aggressive contrarian trader. But since he already is carrying an above average stock market commitment from the 690 level in the S&P 500 no further action is required.