Some encouraging signs

The market has been acting pretty much exactly how I expected....so now what? I believe another retest of the lows at 870ish is in store but I gotta warn you bears out there....the bear side is getting pretty crowded yet again. Take for instance the latest AAII sentiment poll. 55% of respondants are bearish while only 28% are bullish. That's about a 2:1 ratio of bears over bulls. The last time these guys were this bearish was just after the market low in March...thus, the wall of worry is being rebuilt quite rapidily it seems.

Despite the fact that the market had a 40% rally off the March lows, not once did bulls ever outnumber bears by 2:1. The highest it ever got was about 1.3:1 in mid June which shows that people only turned more bullish begrudgingly kicking and screaming...but all it took was about an 8% decline to see these same people embrace the bear camp with open arms. This folks is the classic snake bite psycology in effect. Memories of catastrophic losses are still very fresh and so investors have their gaurds up at the first sign of weakness.

Take a look at the financial headlines and opinions out there from the typcial pundit. The unanimous consensus right now is that any recovery will be slow and quite possibly has already stalled. Even if this is the case, it will difficult for the market to drop sustantially when expectations are low like this. The suprise factor actually favors the bulls here unless we see the economy fall off a cliff big time.

Everyone seems to be talking about this head and shoulders pattern in the market. The question amongst traders out there is when it breaks and picking the right spot to go short. Not a soul out there it seems, thinks that this correction may be just about over. I don't care how good of technical analyst you think you are or if such and such momentum indicators is giving a buy/sell signal, the market tends to go in the direction that causes the most ammount of pain for traders as per the motto of this blog. I've seen it happen time and time again.

So, if everyone has the same trade on who's the sucker that is going to have to lose for you to win? As the old saying goes, if you can't find the sucker at the poker table that sucker is you.

Despite all this, there is still the potential for at least a retest of the lows we saw Wednesday in the comming day(s)....quite possibly tommorow or Monday....but be very carefull if you play the short side because the short side is crowded enough for the market to see a vicious snap back rally at anytime. Next week I belive will be a bullish week if we can see the market retest those lows.

For now I continue to play things 1 day at a time keeping an open mind to both sides of the market.