Sentiment Is Too Bullish

Let me bring up some info from Technical Analysis of Stock Trends by Edwards&Magee 8th edition:

They say that bear markets could often be composed of 3 phases:

Phase I is Distribution when "people in the know" start unloading shares to gullible traders/investors (I don't agree there is anyone ever in the know about absolute tops but let's keep this part for completeness sake)

Phase II is Panic when movement down is accelerated and markets experience ALMOST VERTICAL DROPS. (I believe we are in this phase right now)

Phase III is when stocks continue to persistently go down even on lower volume and people get ever more dejected about the stock market. At the end of phase III everything bad that could have happened has either already happened or being discounted. People don't want to touch stocks with a 10ft pole. Then and only then after people want to forget stocks ever existed can a new bull market begin.

Now they say not all 3 phases are present in every bear market but I believe for this bear market all three phases will be present.

The pundits make it sound like it is a flu shot, just close your eyes and it is over. I think a lot more bad info is to come.
 
Quote from Pa(b)st Prime:

the selling is extra exaggerated by "forced redemptions"
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I find it very amusing how people are blaming hedge funds in order not to take responsability for their results. the credit market had shutdown, economic numbers were horrendous, every major bank was insolvent, world trade was beginning to suffer and yet people think the reason they got clobbered is because hedge funds had redemptions of what $50b or so
 
market rebounding EOD again. You can't keep this thing down..nope no way. The funds and smarties are loaidn up. NO one selling. They see huge value and strong economic fundamentals. The only recession is a media generated one. Massive buying. Tons of upside. No downside.
 
Quote from stock_trad3r:

market rebounding EOD again. You can't keep this thing down..nope no way. The funds and smarties are loaidn up. NO one selling. They see huge value and strong economic fundamentals. The only recession is a media generated one. Massive buying. Tons of upside. No downside.
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I am beginning to suspect that stock_trad3r is really Kudlow undercover.
 
Quote from Pa(b)st Prime:

Clearly one sided. ISE levels at the highest in weeks. Talking heads in unanimous agreement that these are "compelling if not generational valuations", the selling is extra exaggerated by "forced redemptions", possible upside earnings surprises via the "low bar", the Bernanke approved pre-election overture for Bailout ll-The Sequel and of course the implicit trader message-it's too big a break not to buy. Problem is the best buying was done 1000 lower. No wiggle room here. Too many single prints below. Just a retest from here is a big percentage move down.

The elephant in the room is the economy. Bottomed? The implosion hasn't even started. Everyone deep down knows it. Government liabilities on the municipal/state levels were excessive in the best of times and institutional investors are getting smoked. The failure risk of municipalities numbering in the hundreds is certain. And quick. This thing is the global domino, geo-political, sociological Apocalypse of two lifetimes. I expect a marginal new low between now and election day. The only macro bull case I can make is the threat of some horrific G-8 coordinated currency devaluation-inevitable, eh-I've no idea what SPX is worth when valued in new Euro-Amero Boulivars......
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I agree sentiment is skewed a tad too bullish, but I have to say it reminds me of one of Ned Davis' trading mantras "We find that it is best to go with the flow of sentiment until it reaches an extreme and reverses, at which point we take a contrary position." I feel it safe to say we've seen an extreme and are now seeing the phase of sentiment reversing. Just my 2c.
 
Quote from dtrader98:

So just out of curiosity, what is your estimate for the max drawdown from S&P500 pk, when the damage is fully done. It's already some ... what -40%+ from it's peak. You think both dow and s&P will hit -90% this time?

I don't think it's impossible that "this time" will be the one, but, hoping (yeah, I know that and a 1 dollar bill won't even get me a cup of java) that the bulls pull out some of their magic trumph cards (even if they are comprised of pixie dust -- all that counts is perception).
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I thought this would be the 1937-1938 fractal which was -48%. It still may be. That low also had a retest. I'm not in the -90% camp. In a few years shares of IBM may be currency........
 
stock, you should really wait until after the close to tell us how strong the mkt is. We are in a bear mkt remember, oh yeah thats right there is no sell off, the economy is fine and the credit problem was fake. you are a total freak.
 
Quote from stock_trad3r:

It's just a small pullback after a huge three day rally.

Nothing more
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Stock_trd is going to be bullish no matter what. I'm glad to hear that; as long as there are people out there who are more foolish than myself, I should continue to do OK.
 
Quote from frank grimes:

stock, you should really wait until after the close to tell us how strong the mkt is. We are in a bear mkt remember, oh yeah thats right there is no sell off, the economy is fine and the credit problem was fake. you are a total freak.
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You're a putz. Not once have you posted a single trade.
 
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