Advisors Show Surprising Bullish Complacency in the Face of Dramatic Stock Price Weakness

by Robert W. Colby


Advisory Service Sentiment: There were 47.3% Bulls versus 23.7% Bears as of 8/10/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio actually rose to 2.00, up from 1.87 the previous week, indicating surprising bullish complacency in the face of dramatic stock price weakness. The 20-year median is 1.56 and the mean is 1.64. 

 

The S&P 500 Composite (SPX, 1,120.76) fell 51.77 points or 4.42% on Wednesday, August 10, 2011. Stock prices opened lower, tried to rally in midsession to a peak at 2:12 p.m. ET, only to fall below the morning lows in the final 6 minutes of trading.

NYSE trading volume fell 9% below Tuesday’s active pace.

Consider the weekly, broader-based Wilshire 5000 Composite Index ($WLSH). RSI (14) has collapsed below 30, nearly the same level as it was 29 months ago, at the bottom in March, 2009. RSI is well below its 2010 low, while major price indexes are well above their 2010 lows. This is what is known as “bearish momentum divergence”. As the name suggests, it is bearish.

The high-volume price drops in recent days might add up to a temporary selling climax that could clear the decks for recovery attempts in days ahead. Because it is now a Dow Theory Primary Tide Bear Market, however, playing Minor Ripple rally attempts against the Primary Tide probably will be difficult and risky.

In days ahead, I would not be surprised to see two-way volatility as the bulls and bears struggle for dominance in an atmosphere of substantial uncertainty.

Read the rest of Robert’s commentary here  . . . 

 

Thursday, August 11th, 2011 Uncategorized

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