Today's chart of the day focuses on AAII Sentiment also known as opinion of retail investors. This weeks reading came in showing 49% bulls and 17% bears. Now, the spread came in at 32, which according to my chart is now extreme territory. On top of that, 17% bears one of the lowest bearish readings in over half a decade.
Mix this information with large amount of Call buying in the last several days according to both ISE and CBOE; and than add the January correction effect - which usually seasonality wise occurs mid month - and you got yourself a cocktail to worry about. While this might not spell trouble, it does spell c-a-u-t-i-o-n.
Right on cue Tiho. It looks like we are correcting now. How long or big do you think the correction will be?
ReplyDeleteYeah, I'm just advising caution here. There are a few warning signs flashing that a correction of 5 or so percent could unfold. If stocks do fall a bit and Treasuries rally, I'd advise to short Treasuries in 2012, especially if the Long Bond make a new high above 146. That will be a false break out and a point of exhaustion!
ReplyDeleteYes, everyone seems to have gone very bullish don't they.
ReplyDeleteIt reminds me of the final episode of 'Blackadder Goes Forth' when, just before the Great Push, Blackadder is told by numerous senior officers that they will soon be dining in Berlin.
To which Blackadder points out, sarcastically, that he hopes there will be enough tables and chairs as everyone seems determined to eat out.
Personally, as Blackadder is apt to do in a crisis, is to point out that this is a large crisis, stick two pencils up my nose and place my underpants on my head.
Haha. That post made me laugh. Very nice!
ReplyDeleteOn a more serious note, I wouldn't say everyone is bullish on stocks. I'd rather say that majority are bullish about the US Dollar and Treasury Bonds. So the way 2012 could start is by creating a bull trap for deflationists.
In other words, stocks correct, Euro sells off a bit more (almost there) and Dollar / Treasuries rally into "technical' break outs. Than, a huge reversal happens, where Euro bottoms with equities, Treasuries and the Dollar top and deflationists get trap!
The catalyst could be more Fed easing or another EU announcement to kick the can down the road or anything else. Either way, US Dollar and Treasuries will under-perform majority of 2012!