Stock Market Sentiment Off The Charts...Bears can't Get Any Love....

By: Jack_Steiman

You can feel the bears getting ready to celebrate. It's like their guts are busting, because in their hearts they know they have the bulls where they want them. Can't blame them for feeling that way. After all, everywhere we look the bears should be feeling good about themselves. The short-term charts are overbought. The weekly and monthly charts are overbought with potential negative divergences. Margin debt is at an all-time high. Yes folks, an all-time high. The bull-bear spread is at its worst level in nearly twenty-five years. 45.5% heading into this week. It's probably even higher now since we didn't sell much this week now did we. Maybe we're at 47%. Maybe, if not probably, the bulls are now at an unheard of 60%, or higher, while the bears are at an unheard of 14% or lower.

All of this means the bears will be smiling soon, but knowing that exact moment is impossible. The correction to come will be nasty, but again, no possible way to know when. So many charts are setting up again in good patterns, but at some point that will be made to be a moot point as those patterns will fail when the real selling decides to kick in. What's likely holding things up and keeping the bears at bay for now is big money, the big money that has underperformed, is looking to play catch up before the year is out, thus, buying and praying. Lots of funds haven't done well. Got too bearish too soon based on froth and sentiment and are now giving in. So the end of the year is here. Two more trading days left. Sometimes big money chases at the beginning of months as well, but the bears will have their day in the sun fairly soon. For now they haven't, but that doesn't mean the bulls should let their guard down. Day-to-day until we see the big-gap down day that doesn't come roaring back.

The best way to play a market such as this is to play with a sense of respect. This means to stay away from super beta plays such as the usual list of froth stocks we all know about. Just today alone we saw some blood baths in those stocks. If you get in on the wrong day you feel the pain. You don't need to subject yourself to this due to the environment we're in. Lose the greed and at least wait for them to unwind deeply on their short-term charts, if you're going to put yourself through the risk of owning them.

I can understand greed with the best of them in the right market environment, but that's not where we're at this moment in time. Everything I talked about at the beginning of this letter tells you it's time to play slower beta. Slower moving stocks that allow you sleep knowing the risk that's currently out there. They can be boring to some degree but look at how nice Packaging Corporation of America (PKG) can be along with others we've owned. There's always time, if you're patient enough, to play the froth all over again. Now, to me, is not that time. Move along slowly, and if you're long, play it as if you we're new to the game. Slower moving vehicles.

A reminder about front running a market that has sent many front runners to unhappy graves this year. Trying to time when a market is about to get smoked is virtually impossible. There have more signals that the market has ignored than is worth counting. Everything from extreme levels of overbought to clear-negative divergences. The best possible signal you can rely on is a strong, powerful gap down you wake up to one morning that gaps and runs lower all day.

No rally back up. No almost filling the gap. A wide-open gap at the end of the day's trading that causes some real technical damage. That's when, if you want to take a chance, to get a little more aggressive to the short side. The very best way would be to finally lose the 50's, but that's a long ways away. You back test and then you short, but for those who want to front run some with a bit more safety, get that huge gap down that doesn't come back.

In the meantime, folks, slow and easy in a very dangerous environment for really both sides, but now especially for the bulls.

Have a great weekend!

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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