U.S. Stock Market – As noted in my interview with George on Friday, the fact that the market didn’t sell off after the unemployment report was very bullish and my belief was the path of least resistance is up. While some technical charts were/are bearish, some sentiment indicators (commentary below) are very bullish.Individual investor polls of late showed widespread bearishness. I continue to believe the mini melt-up I’ve spoken about from a 1,000 DJIA points lower continues to unfold. I wait with bated breadth for DJIA 10,500 – 11,000.
Gold – What can I say that I haven’t said already? The J__ N_____ of the world continue to be wrong, wrong, wrong and are the best contrarian indicators money can’t buy. Sure, somewhere out there is consolidation and a correction but as I’ve constantly stated since just above $300, staying long and strong is the best course of action when it comes to gold. Despite one new record nominal high in gold after another, the mood around gold is subdue and the badly beaten up bears continue to be the main voices heard crying wolf to the media. Thankfully, we’ve saw through their empty and wrong views and have sang the following to every line in the sand top they’ve predicted at round number from $400 up to now.
U.S. Dollar – Despite historically low bullish sentiment indicators, terminally ill Uncle Sam can’t even muster up a technical bear market rally. Once again it’s getting slaughtered in the Forex markets. The long-term downtrend remains intact and a test of the low 70s appears in sight.
A bucking bronco market
Commentary: Volatility has scared many away from stock market
Perhaps the best analogy I can think of for the stock market’s recent behavior is a bucking rodeo bronco.
Just as a rodeo bronco attempts to buck everyone off of its back, the stock market likes to rise with as few investors as possible on board.
And it’s doing one heck of a job: The stock market is back to within shouting distance of where it stood on Oct. 19, its previous rally high, and yet there are far fewer bulls today than then.
In fact, the level of bullishness right now among short-term stock market timing services has fallen back to levels last seen in March, when the Dow Jones Industrial Average (INDU 10,168, +144.50, +1.44%) was more than two thousand points lower.
This is all good news, according to contrarian analysis, since the market likes to climb a wall of worry.
Consider the latest data from the Hulbert Financial Digest: The average recommended equity exposure among a group of short-term market timing services is just 3.2% right now. The last time the Dow was above 10,000, two weeks ago, this average stood at 25.8%.
So the net effect of the stock market’s bucking-bronco-like behavior over the last couple of weeks has been to throw almost all the remaining bulls off the bandwagon and into the hands of the bears.
That’s amazing enough, but there’s more.
Consider that the last time the average recommended equity exposure among these same market timing services was as low as it is today was March 24, a day when the Dow closed at 7,660. The market is more than 30% higher today than then.
So, in effect, the market has figured out how to gain more than 30% while simultaneously preventing any net new converts to the bullish camp.
I’d have never thought it possible if you had presented me with such a scenario in advance.
A similarly bullish message is being told by the weekly survey of American Association of Individual Investors members. The latest survey, released Thursday, shows the lowest number of bulls since the week ending March 5, four days before the March 9 bear market low.
Some day, we don’t know when, bullish sentiment will rise to dangerously high levels. And that’s when contrarians will want to be pulling money off the table.
Until then, the sentiment winds continue to blow in the direction of higher prices.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.