A Contrarian Stroll Through Recent History

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Opening disclaimer:  I am not trotting out the past to show what a
great contrarian I am.  Truth is, I have not come close to fully taking
advantage of the bull calls last spring and summer.  Given what has gone
on in the precious metals, it has been all I could do to manage risk to
a break even.

That out of the way, this article was posted last May when it was very hard to be a bull:

Dumb Money Sold in May and Went Away

“Led by near suicidal
sentiment among the gold ‘community’, the broad markets recently
embarked on a southerly course as well, culminating with ‘dumb money’
sentiment at very bearish levels in technology, energy, financials,
industrials and on out to commodities.  The last time sentiment was in
such a compelling (contrarian) bullish structure was after the damage
inflicted upon markets by last summer’s acute phase of the euro crisis.”

Flipping the above on its head today…

Led by near pervasive and still-growing
bullish sentiment, the broad market is continuing upward on its course
and is culminating with ‘dumb money’ sentiment and momentum being set to
over bullish levels.  The last time there was such consensus on the
economy and the stock market may well have been in 2000.

“Think about the
election year pattern, think about how wildly bearish sentiment has
become, think about the market’s need to shake out the dumb money prior
to rising and most of all think about how policy makers need to be
perceived as doers of good; as part of a solution, as opposed to chronic
purveyors of an inflationary regime that has been in force most
intensely since 2000.”

Policy makers are not only thought of as part of the solution, they
are revered far and wide in a reverential and growing rabid manner. 
This is the ultimate bull rationalization and it is the underpinning of
confidence (great word) in today’s market.

In July this was written:

Dumb Money Sold in May?

“There are still articles showing up in the MSM
talking about what a good idea it was to ‘sell in May and go away’. 
But the truth of the S&P 500 chart begs to differ.  Yes, it has been
a nerve wracking couple of months, but as of Friday the SPX is above
where all but the most astute of the ‘sell in May’ contingent got out.”

There are now articles showing up in the MSM talking about the Great
Rotation, the Dow’s all-time highs and a new era for the US economy,
which has weathered the Euro crisis and myriad domestic issues as it
continues to strengthen.  All the talk of inflationary policy makers has
gone the way of Goldilocks.

“I do not love this market
by any means.  But I am still long (and profitable) several positions
that were bought down near the lows (Lithium, Rare Earths, a tactical
global fund, a global bond fund) and others in technology and energy
added since.”

Well do you remember how hard it was to be bullish last summer?  Now it is easy to be bullish.  Too damned easy.

“Last week as SPX tested
but did not fail support at the EMA 200, I held, white knuckles and
all.  This market may yet prove that the dumb money sold in May;
especially if the rally ends up going on long enough to drag them back
in again before any coming change to bearish again.”

The dumb money is holding without a care in the world.  

Another post from August:

“Dumb Money Sold in May and Went Away”

“But even if the market
tanks tomorrow and stays tanked, the dumb money sold in May.  Sentiment
structures said so then and ‘price’ says so now.  The big question is
whether or not the dumb money will buy back in setting up the opposite
scenario to May.”

One opposite scenario, comin’ up?  [edit] No comment on timing, see new post.