As I write this Sunday night, the market futures are up solidly indicating a possible strong open Monday morning.  This is obviously a direct response to the successful election in Iraq.  It's interesting how the U.S. markets were in the state of flux in November because of the possibility of another deadlock in the election, with no winner declared.  Today, just the fact that the elections in Iraq were able to take place without significant incident, never mind who may have won, seems to be enough for the market to rejoice.  Even if it is only a short term rally.  

That has been the problem lately.  The market tries to rally early, only to be sold later in the day.  Friday we saw a positive open turn negative fairly quickly.  As the deadline approached, I saw the S&P 500 down to 1167 and I had mentioned that I wanted to step aside if it could not hold last Monday's low of 1163.  With four hours of trading left and about a half hour before the deadline, I decided I better make the move to lighten up on stocks in case 1163 did not hold.  As it turned out, the S&P managed to stay above 1163 as the low was 1166.  So the move may not have been necessary, but with the uncertainty of the Iraqi election over the weekend, I thought better safe than sorry. 

So there you have it.  I capitulated.  I gave up.  Surrendered.  And now the election is over and we are looking at a potential rally to start the day.  I would have rather seen a panic sell off which would give a much better indication that the next rally would be successful.  We don't always see the panic selling.  It just makes the odds of a bottom holding somewhat better.  So let's see, where am I on this emotion cycle chart?  Where are you?  More importantly, where is the herd?

 

Was the sell off early Friday "the" capitulation?  Maybe, but I would guess the herd is closer to the "denial and "fear" stages as we are still seeing mixed results in the sentiment surveys. 

The Fearless Forecaster Survey that I talked about a week or so ago, came out again Saturday and the bullish percent is a remarkable 79% versus 16% bearish.  This poll is taken from what are supposed to be more savvy investors so we may want to take note.  79% is the highest bullish percent shown on the yearly sentiment chart.  Interestingly, the 16% bearish reading was not the lowest point.  Two weeks ago there were only 11% bears and we know that was not a great call.

We are getting close to a bottom if we aren't there already.  However, if we do get a capitulation from the herd we may see one more significant sell off.  That would be the clean sign.  The not so clean sign would be for the market to continue to have small rallies fail and slowly move down lower and lower until despondency and depression kick in.  If we haven't hit the bottom yet, and 1163 does not hold, it may be a move to the 1145 - 1150 area on the S&P (red X) over the next couple of weeks that will get us to that emotional level.

                                 Chart provided courtesy of www.decisionpoint.com

That's all for today.  Currently 60% G, 40% C fund.  See you tomorrow.