Last Wednesday we told you not to miss out on the pullback that had already started. Hopefully you listened. While the USA today was writing articles on why the 3 year bull market was coming to an end, we were buying stocks. While investors continued to pull money out of stocks and into shove it into bonds, we were buying stocks. While CNBC was telling you the next big move in AAPL was to the downside, we were buying stocks. Judging by the explosive move higher today, it appears others have started to join us. We can’t say we’re surprised…
“…we still do not see any indications that the underlying long term bullish trend should be in doubt. We actually expect this pullback to set up a more bullish short term psychological backdrop because we believe that most who have been waiting for a pullback won’t even realize that it has already started.”
-@ the bell 3/7/12
What’s the best part about this rally? There doesn’t appear to be much participation. The percentage of those bullish as reported by the AAII sentiment survey actually dropped 2% last week. Meanwhile the percentage of those bearish rose by the same margin. This is a good sign as the average is coming closer to more historical norms. What would be a red flag is if everyone was getting very bullish as the market was rising because that would imply people are getting into the market.
If you did want to throw cold water on this blazing rally you could start by focusing on th VIX. While we have pointed out that periods of low volatility typically bode well for the markets, all moves lower have to start somewhere, and they tend to start when no one is expecting it. The current levels of the VIX signal that a lot of people aren’t expecting any drastic moves lower. In fact, the last time the VIX was this low was April of last year, just as the market was putting in its 2011 highs. However, instead of guessing that this time will be similar, we’d rather wait for some type of signal first.
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Related posts:
- SH @ the close 8/31/2011: Market have best streak since June but rally looks exhausted
- SH @ the close 3/1/12: March brings continued march higher
- SH @ the bell: Reacting to “window dressing”
- SH @ the close 6/8/12: Suckers rally or time to get bullish again?
- SH @ the close 12/2/2011: Largest one week rally since March 9th, 2009
