Tuesday, May 25, 2010

Could The Crowd Be Right This Time?

Last night I showed a chart of the extreme pessimism in the market. This morning Mark Hulbert posted an article on Marketwatch which says that his survey of market timing newsletters, some 300 newsletters, are now 45% short - down from 80% long just 3 weeks ago. This is one of the biggest shifts in sentiment we have ever seen and not one normally associated with tops. It's hard to be a contrarian, but now is the time that contrarians stand up.

The intraday pattern appears to be a triangle. Triangles form before the final wave of a movement. The current down move appears also to be a 5th wave down from the 5/13 high, and although it could be severe, 5th waves are ending waves. We will look for divergences. Should today's low be the end of the move down from the April 26 high, the next likely movement would be a 3 wave upward correction in wave B or X up, which should retrace at least 50%, if not 62%, of the decline. This upward correction will likely take many weeks and be very choppy. A complete retest of the high would be the most bullish outcome, but we are far from that outcome at the moment.

In any case, a retest of the Feb 5 lows is in store for today it seems and possibly lower. Fib support for the Dow is around 9460 and the SP500 is around 1008. We need to find support above those levels or we may indeed be headed for a greater crash and the crowd may indeed by right. I've just never done well going with it, and I don't plan to change my behavior at this stage of the game.

No comments: