The new AAII Investor Sentiment Survey comes out some time this morning. l am very curious just how bearish the herd has become. If they are not bearish yet, the damage may not be done. I'd like to see a 35% to 40% or higher bearish reading. Any fewer would have me worried if I were fully invested as it would indicate that there isn't enough fear out there yet.
As you may have seen I put 30% into the C fund effective today. It may be a bit premature. There should be other opportunities to either buy lower or at worst, back at these levels. The chart below shows the break down of the recent support line. If you look at points 1 through 5 that I marked you can see that sell offs are not typically "V" bottoms. You usually get some big down days followed by some choppiness and either a further pullback or at least a test of the first low made. Point 4 is the exception.
Chart provided courtesy of www.decisionpoint.com
It is very possible that the panic selling hasn't finished yet. Joe Sixpack just got the news last night and if they are not worried, the market will make them worried. We really haven't had much pain yet since we are only a week past the new multi year high. One positive sign is that the equity put/call ratio hit the highest level since August 8th of 2004. I marked it on the chart above and you see most of the damage had been done by that day. A high equity put/call ratio basically is another sentiment indicator telling us that equity options traders, who as a whole are typically wrong at market extremes, are getting very bearish. That is a bullish sign for the market. It doesn't mean the market is going to jump up from here, but it is a good start.
It's been a long time since the days when a bad day was a really bad day. The Dow dropping 200 to 500 points seemed to happen more often back in 1998 to 2002. Yesterday's drop wasn't even a 1% fall on the S&P 500. Not really a panic.
So what am I saying? We could see more selling but we are likely to get a temporary bounce somewhere in there. This isn't a slam dunk. We have to remain cautious but still take advantage of extremes. Picking a bottom can be hazardous to the health of your account balance. That is why I am dripping in right now. If we drop 500 points today however, I'll jump in with both feet.
Stay
tuned. That's all for today. Currently 70% G, 30% C fund. See you tomorrow.
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