We have been using the Tinder Box theme in NFTRH lately. As in, stock market sentiment is so bleak, so depressed as to be a Tinder Box with the elements to ignite a flame that bounces the market, to clear the over bearishness at least.
We have successfully followed a plan every step of the way… 1. down from the August breakdown, 2. up on the bounce to SPX 1975 or 2040 (hit 2020) and now 3. down to a test of the October 2014 / August 2015 lows, which is a decision point between a bounce or an entry into a bear market (by making a lower low to October 2014).
We arrive here amid an over bearish sentiment backdrop that is all out of whack with what has actually just been a twitch by the market in the big picture (with bull parameters still intact). So whether this is the bounce, as it seems to be – and we are getting some follow through despite the volatility – or it comes from a lower level, it is going to happen.
There were the small speculators way too short the market and Investors Intelligence data showing newsletter writers having totally abandoned the trend they rode for eons (well, since 2011 anyway). They are now advising extreme bearishness to subscribers. Here’s the latest graphic on that, courtesy of Doctor Ed and the Daily Shot.
I am the guy that’s often jumping up and down about how unhealthy policy is and frankly, how immoral I consider it to be (calling Robin Hood!). But morals and even right and wrong are different from market sentiment and market prices. Regardless of how bearish things have gotten in the markets lately, the thing directly above is a massive contrarian bullish indicator, to the tune of lows only seen in the depths of previous bear markets. So too was the small specs shorting data.
So as we noted in NFTRH, a bounce is coming and by the looks of things, it may already be here barring a reversal, which is always in play with the crazy in-day volatility this market has displayed since August.
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