ST bearish LT still bullish

The market continues to grind to new highs. With the market now up 6 days in a row, mostly with small gains, bears have been suffering in a Chinese water torture type fashion.

As of tonight, 2 out of the 3 rydex indicators I look at are now in bearish territory. I will find out tomorrow morning about the 3rd. As I've mentioned before, momentum can squeeze the market higher as it has been doing, but the bull tank appears to be running close to empty and the coming correction will likely be in the 2.5-5% range and it will happen at the point of maximum frustration in the trading community.

Longer term the market is in good shape from a sentiment and fundamental standpoint. There are still plenty of doubters, nervous nellies and retail perma bears out there to power this market higher. Despite a 70%, 9 month advance and a fresh new 52 week high, people are STILL calling this a bear market rally. lol! I suppose only when the market makes new all time highs and unemployment is back to 5% these idiots will admit to a bull market.

Meanwhile, we have a steeply sloped yield curve which is signaling strong economic growth lies ahead with practically a ZERO percent chance of a recession within the next 12 months. It boggles my mind how I see predictions for a double dip recession from the likes of many pundits out there who are seasoned veterans when it comes to the markets and economics...guys like Hussman and Mauldin, and yet these guys never once mentioned how the very steeply yield curve is giving them the middle finger with their double dip recession forecasts. EVERY recession that has occurred has been preceded by an inverted yield curve. The only double dip on record as far as I can tell were the 1980 and 1982 recessions. The yield curve became inverted both in 1979 and in 1981 successfully forecasting the double dip. The steeply sloped curve right now is sending the complete opposite message: NO CHANCE for a double dip.

So, these experts want you to believe that a double dip recession, which has only happened 1 other time, is going to happen next year in the face of one of the most steeply sloped yield curves on record. How in the blue hell can these "experts" not see what I'm seeing? I'll tell you why. It's denial. It's trying to save face for being so wrong. They know the shape of the yield curve but they are dismissing it because it doesn't fit with their bearish outlook for the market which has been embarrassingly wrong. Instead of admitting they are wrong or at the very least very premature, they simply "double down" on their bearish convictions claiming that they are "early" but are going to be proven right shortly.

As a trader/investor you don't have the luxury of the Prechters and Hussmans of the world who claim to be right but "early" whereby early is measured in several months, years or decades (in the case of Prechter). Instead of making money you will be broke before you will be able to cash in on your "convictions". Find another way. If you can't then give up trading/investing because you will lose big time.

My way is to look at market sentiment from a contrarian perspective in the context of general market conditions both in the ST and LT. The "context of general market conditions" part is important because in bull markets it’s natural to see bullish sentiment and in bear markets it's natural to see bearish sentiment. Therefore, what is considered "too bullish" or "too bearish" in a bull market is different then what is "too bullish" or "too bearish" in a bear market. A lot of rookie traders this year failed to make that adjustment and got ran over. For example, overbought conditions simply became even more overbought, low put/call ratios simply got lower. Only when these indicators became chronically stretched did the market rollover and it only did so marginally with the biggest drop being 7%. I believe we are close to getting one of those corrections right now. My best guess is anytime between now and January 14.

But longer term, there is no danger on the horizon as per the large amount of investor skepticism, the yield curve and the trend in earnings growth. The time to worry about the long term is when joe public is not worried but the stock market is. Right now joe public is worried big time and the stock market hasn't been. ..that’s always been a very bullish sign longer term.

Going forward I'm probably going to cut down to making 1-2 posts per week. The emphasis will be more on the bigger picture then the day to day wiggles of the market.