A
week ago I commented that Sentiment looked benign and was around 50%. Since then sentiment has shot up to 63%-bulls
(based on the amount of money placed in selected Rydex leveraged funds) and is
nearly giving us a sell for that one indicator.
It takes more than one indicator to turn the NTSM system to the dark
side though, and all the others are still bullish or neutral at this point.
My inclination is that the bullish sentiment is not a contrarian call, i.e., the correct call is probably long now. That is especially true after Alcoa’s earnings beat today and that seems to indicate the world economy is not as bad as all the debt crisis publicity would have you think. (Alcoa’s earnings were up 2.5 times last year’s 2nd quarter.) We also have not seen the huge one-day spikes in sentiment that usually precede a significant top. In the end, it’s all about earnings and if earnings continue strong, the European debt crisis is just a red herring.
The
US debt negotiations, too, are likely to be resolved, although the resolution
may only come after some dislocations (a fancy word for panic and pain) in the
market. But again, if the earnings are
there, the market will quickly improve even if there is some sort of short term
US payment of IOU’s rather than real cash.
Note that I don’t call it a default, because the US won’t default on its
bonds. The cuts necessary to balance the
budget overnight (44% cut in spending) will take place elsewhere – not to the
holders of our debt (China et. Al.)
The
Navigate the Stock Market analysis remains HOLD which is its neutral position.
I
remain 50% invested. That is my fully
invested position for the time being. I really want to see what will happen to
the US debt issue before committing additional funds to the stock market. This could still be a huge mess – even if it
turns out to be relatively short term.
In summary: Long-term I am bullish; short term - i'm keeping my head down.
