Market Update January 27, 2011

Article by Jeffrey Webster

Despite the excessively bullish sentiment and falling seasonality support, the industry has defied skeptics and kept going upward. Of program it is not our occupation to make predictions, per se, but instead to look at what the marketplace information is telling us and respond accordingly.

As I have noted before, just due to the fact public traders turn into excessively bullish does not necessarily indicate the market will right away turn downward. This is one particular purpose why our signaling program demands not only for the sentiment indicator to be at an extreme, but also for it to really turn just before a major signal is issued (though for a amount of indicators we do give a weak signal if it is far adequate into the zone).

There are two primary variables at function explaining why the CTSS has risen so sharply. Initial of all, numerous crucial sentiment indicators which had been on offer signals turned and headed back up. This will both cancel the signal, or at least lower it by 75 percent (as in the case of reversals in the intense zone). Second of all, the rally had the impact of strengthening Trend and Breadth Trend drastically.

The every day Nasdaq/Dow turned upward, reversing the market signal. The whole Simple/MA trend suite has gone to maximum buys as opposed to the assortment of tepid signals we noticed final week.

The Breadth Trend category was the most significant gainer. In truth we had a close to unanimous reversal across the board. Last week all had been on offer signals as of today’s close only the NAA50 is unfavorable, the remainder are on total buys.

So, total issues are searching significantly far more bullish than they were final week. Nevertheless it is crucial to note that Sentiment remains overextended as far as public traders goes. Traditionally when the “crowd” gets excessively confident we are most likely to be seeking at a decline. So I nonetheless retain the view that stops should be kept very tight at this point. And you ought to be using stops in this market surroundings!

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