NFTRH 478 Excerpt: Market Sentiment

Note: I am short nothing whatsoever in this market except a small position against junk bonds. I am long several broad market items and managing risk by also being long a big hunk of the safest cash equivalent vehicle I know of, T Bills (hat tip: Prechter, from many years ago), which are now paying increasingly okay income for a risk ‘off’ position. I also see quality gold/silver positions as a good counterbalance to the risk ‘on’ mania right now. Finally, I am restarting the regimen of taking profits and recycling into interesting seasonal and/or technical setups. Risk is risk and price is price. Risk is massively high and the general market is massively bullish. The two can coexist for a while, but at some point they’ll decouple. 

NFTRH 478 excerpt: Market Sentiment (graphics: NFTRH & Sentimentrader.com)

Last 2 weeks: “Here is a look at the ‘micro blips’ I’ve been going on about lately. This short-term 2hr chart shows what has happened the last 4 times that the VIX spiked. It’s been a bull refresher. On Friday the VIX had a vigorous spike and the odds would dictate that this may have been a 5th refresher (just in time for the flowing spiked eggnog and bonuses on Wall Street?).”

And right back to the hell it came from goes the VIX. This is a very bullish and very dangerous market. It is training casino patrons not to fear a little volatility. It is training patrons to simply buy the dips, get rich and live happily ever after.

vix

I mean, what could go wrong? Yet through blip after blip it has not gone wrong yet. It has been to our advantage not to be sounding alarms all over the place but for me personally, it is coming time to think about raising more cash.

vix

Here is the general risk backdrop after the tax and FOMC noise.

risk

Dumb money sucked on the rally and Smart faded it.

smart money, dumb money

Optimism jumped but pessimistic indicators did not hit the mat. All in all, a developing contrarian bearish picture.

extremes

Below, by way of Kevin Muir’s article [posted at biiwii.com], we have the best and brightest in their full bullish, trend extrapolating glory when it came to New Year prediction time. The new year was 2008 and the market had already shown plenty of signs of topping in 2007.

Current US markets have not shown signs of topping, other than the very conspicuous goings on in the ‘leader’s leader’, the Semiconductor sector. But suffice it to say, the public does not listen to some lunatic with a newsletter named after a children’s book (classic, though it is). The public listens to Abby Joseph Cohen because she is an expert. Much of the public also has political bias and everyone’s got fiscal tax policy in the bullish quiver. But it is just not this easy.

So we are bullish just like every other newsletter on the planet (Investors Intelligence is bullish to an extent not seen since 1987). But it should not be comfortable and personally, I plan to increase risk management mode before long.

[edit] Adding the other graphic from Kevin’s article. Bringing us up to speed on the view from today’s best and brightest…

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