Month: August 2011

IBD announced in Thursday’s edition that the latest sentiment poll had almost twice as many bulls than bears.   This amount of bullish advisers is not what you would expect if the market were near the bottom of a decline. This weekly GMMA chart of the S&P 500 stock index shows that the shorter term averages (red) are just breaking below the longer term averages (blue).   It is still too early to determine if this down-trend will develop into a stage 4 major decline. Click on chart to enlarge.

With the futures down a lot   this morning, we need to see whether this renewed decline will hold above the recent lows.   I am in cash and safely watching from the sidelines.

One fact that really makes me think this market has further to fall is the bullish sentiment in the Investors Intelligence poll.   According to IBD, last Wednesday’s poll showed twice as many bulls than bears.   Bottoms often occur when there are more bears than bulls.   This is a contrary indicator.   When many are bearish, the market is usually too oversold and ready to reverse up.

I remain in cash, watching the strength and duration of this rebound. Major trends remain down. IBD calls the market in a correction and is waiting for a high volume follow-through day in order to change to a rally mode.   With volume declining during this retracement, we could   see another leg down.