Thursday, January 17, 2008

EQUITY MARKET COMMENT - 1/17/08 - The Time To Panic Is Not Upon Us!


The action today brings the market right down into our maximum risk zone, an area that from a probability standpoint offers the best chance of being a major low.

Given the market action over the last few weeks you can see why we were hedged for 2/3 of the decline and moved to only a 40% allocation equities after we saw some stabilizing influences.

Looking at how the market has been acting, especially over the last 6 days, there is an apparent air of panic among not only the retail side of the tape, but the institutional side as well. While on the surface this may seem like a bearish thing, it actually is very bullish. The enormous amount of volume we have seen in that time frame as well smells of capitulation.

I am not saying that all is well on the equity front as the market still has much to accomplish to turn the current bearish trend around. What I am saying is that the current downward spiral in prices should be very near completion as most of the selling looks to have been completed.

Sentiment is another feature we have touched on recently and we will touch on this again.

As of today, the bullish sentiment hit its lowest levels in over 10 years sitting at 19.5% bullish.
This makes over 80% of the market participants in the bearish camp and all of them positioned for further weakness in the markets. This is one of the reasons that sentiment indicators like this work so well, as once the vast majority of players are positioned on one side or the other there is no longer a driving force to push prices in their favor any longer.

While I continue to remain cautious and the equity allocation reflects just that, I also remain on the lookout for bargains and opportunities for the time this market finally turns around.

Remember, when you look at the market and your positions and you feel like you are going to puke, it is either time to add to those positions or know that the market is about to shift trends.

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