How are you feeling about the market?  Are you staying in stocks assuming we will get a bounce or are you ready to jump out at any cost because you can't take the pain?  The latter is the sentiment needed to turn things around.  For the last two weeks, after the big initial two day drop this year, the market has been trading in a range between 1176 and 1196.                         Chart provided courtesy of www.decisionpoint.com It hasn't been terrible but Ebay's earnings report after yesterday's close may change things.  If we get a very weak opening, we may see that capitulation from investors.  People can only take so much pain.  I am still in stocks, but perhaps the best thing we can see to turn things around would be to get a drop to the 1175 or 1165 area on the S&P 500 with a quick turnaround later in the day.  That would be capitulation. I don't know if things will get quite that bad today but we may need to see something like that to get out of this pullback.  If you look  at the 3 points I have marked on the chart below, you will see similar action;  A drop followed by a failed rally that comes back near the lows, before the real rally starts.  It's like the initial drop is not enough to shake everyone out.  The first attempt gets knocked down and that's when you see capitulation.  That, "I'm outta here" attitude when people can't take the pain, and sell.  That's when the market turns around.  The market isn't happy until it humbles us all.  So a drop to 1175 to 1165 just may do that.

                                Chart provided courtesy of www.decisionpoint.com

Let's take a longer term look at things.  You can see that both support lines meet near 1165.  It may take a day or a couple of months but I think that may be where we are heading eventually.  If it does take months, we are likely to get another rally to suck everyone in again.  That's when I'd rather sell.  Not now.


                              Chart provided courtesy of www.decisionpoint.com

Trying to predict short term future moves isn't easy.  If you are not comfortable trying, being on the side lines for a few weeks or months may be easier on you.  Just remember, as soon as you feel like giving up (not just thinking it would be best to step aside, but really giving up because of you can't take it any longer) that is probably when we will get a bounce.  Use yourself as a guide. 

The AAII Investor Sentiment Survey comes out this morning again.  Last week we saw 40% polled being bearish.  I wonder which will have more of an effect, the 2 day rally we had Friday and Tuesday or yesterday's drop?  If we see that number over 40% again, I will feel better about seeing a rally.  If that number falls, maybe we'll need more pain before we get a rally.

That's all for today.  Currently 50% C, 25% S, 25% I fund.   See you tomorrow.

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