Thursday, January 12, 2017

Is Bullishness Towards US Stocks Uncomfortably High?

The majority often reasons that people on TV, influential websites, and social media gurus must know what they're talking, otherwise they wouldn't be there. My experience says don't count on it. Seasoned traders learn that the media is often unwilling manipulated to talk up the long or short position while more powerful interests fade the talk under the cover of increased activity (volume).

Is the US stock market headed for correction? Subscribers know that the US stock market entered consolidation or unfocused period weeks ago. Corrections, some with sizable declines, are common to consolidation periods. Some believe consolidation will be driven by bullishness falling from 'uncomfortable highs.' While falling stock prices will transfer sentiment from optimism to pessimism, a bullish trend, it will hardly do so from extreme readings. The computer, a follower of the message of the market, still defines a bull phase from slightly above average optimism (chart).


Chart Notes:

* 2014 was the last time we saw uncomfortable highs (see latest SP 500 Chart).

* February 2016 was the last time we saw uncomfortable lows. Few cared then, because the majority was bearish.

* SP500's sentiment model is an excellent stand alone trading tool for US stocks (see latest SP 500 Chart).

* Anyone trading stocks without this information will likely end up blindly following the majority or a countless number of gurus that pass after-the-fact (ex post) interpretations as predictions.

Headline: Matarin Capital co-founder: Bullishness is at "uncomfortable highs" and could lead to market corrections

Despite market optimism over Donald Trump's agenda of being pro-growth and pro-market, Nili Gilbert, the co-founder of Matarin Capital and portfolio manager, is apprehensive toward the bullish attitudes.

"Investors aren't showing the kind of caution you would expect, even in the context of a pullback like we're seeing today," Gilbert told CNBC's "Fast Money: Halftime Report" on Thursday. "When we look at certain sentiment indicators, we're seeing readings of bullishness that are at uncomfortable highs and signaling trading tops. That suggests that even if the agenda goes well, a lot of the trading that's to be done is already in place."



Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.