Friday, February 04, 2011

Watching the Crowd

Mark Hulbert at Marketwatch reveals that folks tend to think the market is okay now, but could run into trouble later.

How would they be proved wrong? Many ways. For example: One way, for example, would be for the stock market to embark right away on a significant correction, followed by strength later in the year.

And it is February, not the best month in the month. Well, maybe it's the 10th best month of the year.

So the problem with being a contrarian is that sentiment can run in extremes for quite awhile before reaching the tipping point. It's not an exact science, like global warming. Oops. Did I really type that?

My bottom line is that sentiment is not a reason to buy or sell. It's interesting to watch, because when the market does reach an inflection point, many or most will be leaning the wrong way. But before that happens, price and volume will be showing cracks in the stock market. The leaders will be rolling over. We'll see distribution days. We'll see heavy volume on down days, and light volume on up days. The divergences will be there.

If we're there and paying attention, and not sipping mint juleps expecting higher and higher returns.

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