A Thorn in the Market's Side

 | Aug 23, 2011 | 6:38 AM EDT  | Comments
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Can you feel the depression all around you? Even those shorting stocks are disappointed that the S&P 500 didn't fall apart Monday the way it did on Thursday and Friday. These folks really wanted 1120 to give way. As one bull remarked to me, the other side of the coin is, "Just wait -- they will break 1120 after the bell!"

That is anecdotal, but the Investors Intelligence readings are not. I know -- I promise I will stop harping about this indicator this week if it finally backs off. But, for now, it remains a thorn in the market's side. The chart below goes back to the spring of 2008. Please understand that this sentiment reading has been around since the 1960s, and it is not a telephone survey. This is a survey of market newsletter writers: They have already written down their thoughts, and these are then tabulated by the folks who manage the survey. The same group is "surveyed" each week.

 

Investors Intelligence Readings

Here's an explanation of the above chart:

● Point A is October 2008. It's highly understandable why there were only 22% bulls then.

● Point B is the March 2009 low. Again, the S&P was at 660, so it's understandable that folks were not bullish.

● Point C was the July 2009 low. You might not recall July 2009, but that was the last time -- until now -- that the KBW Bank Index was trading in the mid-30s. So again, this ratio is very understandable.

● Point D was early February 2010. We'd seen a 100-point decline in the S&P in January -- so, again, it was understandable that there were only 38.9% bulls.

● Point E was last August's low when -- at least in my view -- the market acted much better than it does now. You can see that, even then, there were fewer than 30% bulls.

● Finally, Point F was the June low. Again, we were seeing bad Greek debt news on a daily basis, and the market was skidding continuously.

I have gone through these statistics from prior years, as well, and cannot find another time when the market has fallen in a comparable fashion to the current action while the bulls have remained so steadfastly bullish. As you can see from the chart, it is inconsistent with previous market periods.

If these bulls come under 40% this week, things will finally make more sense to me. If they remain high, you can rest assured I will continue to harp away at this particular lack of bearishness in the market.

We don't often discuss the chart of the Dow, since it is not the index many are matched again or trade. However, since it is one of this year's best-performing global indices, I thought we'd look at the support it has on the chart around 10,700. I admit this is not a great support line in terms of being an uptrend line, but when the market broke out last fall, you can see it retested that level. As such, there is some validity to it. So if the Dow can hold above that and get the bulls to fall this week -- well, that would be something, eh?

 

Dow Jones Industrial Average

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Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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