Bears get thrown a bone with consumer sentiment

University of Michigan consumer sentiment came in below expectations today. The current reading is 63. Bears I'm sure are going to have a field day with this claiming that this is a bad sign for the economy. Well, I beg to differ. Consumer sentiment should be viewed as a contrary indicator when at extremes and right now it is and it has been since November. Other times consumer confidence was this low were 1990, 1982, 1980 and 1974. These periods all coincided with great long term buying opportunities. Now, one may counter this and say "what about in the 1930's?" Well, fair enough....there's no data that goes that far back as far as I know and it could very well be the case that consumer sentiment was low and stayed low for years rendering it a useless contrary indicator. You can go ahead and believe that but you would be betting on a low probability event given the long term track record of consumer confidence readings and the outlier that was the Great Depression. And is it really fair to compare this period with the 1930's when back then GDP contracted over 25% and unemployment hit 20%?

Last year at about this time some bulls argued that the low consumer confidence numbers was a contrary indicator as I am doing now....the problem though was that a) confidence although low was not at historical lows b) the stock market was acting bearishly. This is why I always look for the signs that the market is confirming any notion I have. You can go ahead and think the market is rigged if that makes you feel better.

Anyhow...as I type this the market is grinding along near the lows of the day. I have noticed that any significant down day since the March bottom has began with the market showing weakness right off the start with the majority of the downside happening within the first hour of trading. That folks is bull market/wall of worry profit taking behavior. I've touched upon this many times over the past few months. In a true bear trend you tend to see the market start off positive/flat and then fade into the red by the end of the day until right near the very end of the bear phase when the panic selling hits.

Only bears that have been holding overnight positions (and suffering for months doing so) benefited from this down day. The "day trading bears" likely got nothing out of this. All this does is re-enforce bad behavior because it will make bears gamble more holding overnight which for the most part has been a losing strategy.

The put/call ratio is high today which gives the possibility of a late day squeeze but with the market down significantly, this high reading is somewhat justified and so it's contrary implications are mitigated as a result.

My gut tells me that the REAL correction will start in about a week...but that's just pure instinct talking. Until bears take out 990 they haven't broken the bulls control over the market. I'm sitting on my hands right now.