Sentiment Suggests a Pullback

On Friday’s Kudlow & Company, I mentioned that we are overbought, and we should be expecting a  pullback over the next week or two. I said I expect it to be mild, and buyable.

On that same subject, JDC points us to Carl Swenlin’s chart, which suggests sentiment is way too Bullish:

click for larger chart
Sentiment__overbought

Chart Courtesy of Decision Point

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One of the fascinating things about the market is how so many different approaches an be used to reach the same conclusion. You can use a variety of different methodologies to determine am overbought conditions:

• The last few days of the advance has been on decreasing volume;
• on a time based system (See Raymond James’ Jeff Saut for his day count);
• Dick Arms uses the the Trin (or Arms) Index;
• Charles Nenner of Cycle Forecaster (and one of my partners) uses cycles;
• Kevin Lane of Technimentals suggests internal conditions have decayed predicting a short term pullback;
• and the aforementioned Sentiment factor.

All 6 of these methods suggest upcoming softness.

What's been said:

Discussions found on the web:
  1. Fred commented on Jul 18

    When everyone leans in the same direction they tend to all fall over. Not so? 😉

  2. royce commented on Jul 18

    You could be right. Valuations of relatively pedestrian stocks have crossed 20 times current earnings, and it’s not like there’s this huge mood of confidence in great earnings growth out there.

  3. scorpio commented on Jul 18

    interesting that S&P’s Market Edge has for some time now (matter of months) been predicting pullback beginning 7/22. they see down market for one month, rally for another month, then down for the rest of the year

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