Stock Market Pulse and Sentiment Q1/2009

With the general market down 50% and financials and housing down 80% over the past year and the market indices down at 12-year lows, there is market sentiment that we must be near the bottom.

From a long-term investing perspective, this is a good time to buy in, although the entry into positions should be gradual to account for further price drops. Also, dollar-cost averaging (buying a fixed dollar amount at regular intervals) can be employed.

Notable bear market players are saying a bear-market rally is coming and some are even saying a big rally. So, the sentiment is that the markets are due for a bounce with the open question on how big a bounce. Some have disclosed that they have sold their short positions and are making a play on the long side.

For brokers and advisors who are recommending sell at this time, I tend to think they are wrong. It continues to baffle me why people actually pay brokers and advisors for that kind of recommendation. But we don’t know, they could be right and the rally crowd is wrong.

None of this stock market sentiment is to suggest that the recession is over. The underlying economy is still in very bad shape. However, the sentiment of the stock market participants is that the markets have gone low enough (how much lower can it get?) and that it is time to reverse direction.

For short-term traders, it would seem making trades on the long position is the proper move for now and that shorting is on the high-risk side. Follow the technical analysis indicators for the best read on trend reversals to the upside.

Comments are for informational purpose only and do not constitute stock trading recommendations.

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