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Climbing the “Wall of Worry” February 20, 2011

Posted by Tom in Thoughts.
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This market (especially the US markets) just keep chugging along.  The old phrase “Climbing the Wall of Worry” seems very appropriate.  There are many “reasons” for the market to correct and go down for a week or two . . . but it doesn’t.  Many sentiment indicators are negative, which gives us cause for concern, but price isn’t affected.  What gives?  Well, I’m not sure if anyone really knows, but it’s hard to fight the slow climb of prices.

Some have asked “Just what is Market Sentiment anyway?”  (and why should we care?)

There are many non-price related parameters which attempt to show what’s going on behind the scenes, and here are a few:  number of stocks Advancing  vs. Declining, Up Volume vs. Down, Call Volume vs. Put (options to buy vs. to sell), Futures Contract activity and the list goes on.  I subscribe to a service that tracks over 100 of these and places them into a composite ranking of “Smart Money” vs. “Dumb Money”; you can see that chart in my newsletter posted in the tab above this post.

Right now, we are in a Risk position for a market correction (down), but it doesn’t predict “When”.  Since “Only Price Pays”, we’ll stay right where we’re at, invested in the leaders; but I’ m not very comfortable in here.  The market itself will tell us when we are no longer Welcome.  That could be Tuesday or a month from now, but that’s what makes a market.  Be invested, but be cautious as well.  This market is long overdue for some downward moves; likely, when no one expects it.

Have a great week.  And feel free to comment (comment link at the top of this post).

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