SENTIMENT, IT'S MY OPINION!!!!!........

There is starting to be some talk about excessive bullish sentiment on the stock market. I have to admit at this point it is hard to find a "analyst" who is not wildly bullish on 2011 on stock prices. There are those who would then argue that is a reason to be very wary of prices. In theory if everyone is leaning one way who is left to chip in to keep that going? Tom Demark, one of the great futures trading analysts wrote in one of his books that prices stop going up when all the buyers have bought, not when all the sellers show up. I suppose this could be a play on words, but it does make sense. At some point when there is no money left to keep pushing a move in either direction, a change will occur. It is how to gauge this that is the challenge.

If you look at the above chart of COPPER you can see two periods where I have marked with horizontal red arrows, where Sentiment was excessive for extended periods of time and no trend change occurred. This is typical and is the reason why there is no magic number on Sentiment that screams buy or sell. I do have one spot marked with a vertical arrow, that represents a better way to use Sentiment. We were moving up in a strong uptrend, had a retracement, and Sentiment got very bearish with the trend still intact, albeit barely. It is excessive sentiment in situations like this that is more meaningful in my view. You can see at the far right side of the chart, that Sentiment has once again been pegged at excessively bullish levels for a few months and prices have marched higher without missing a beat. Had you been shorting this market due to this you would have been wiped out by now.

The next chart of the SP 500 shows the same thing. You can see that the best way to use the Sentiment is when it goes against the current trend on pullbacks. I like the quick switches where it quickly moves to the opposite extreme. I have marked off a couple of these. Quick changes against the trend although some do work, are not as reliable.

My apologies after 2 hours of trying to finish this post with the poor Internet connection due to rain here in San Diego, I am giving up. Satellite Internet does not work when it rains and I cannot get a connection to the Google servers that will allow me to post any charts. I was lucky to be able to get the first one in. I will complete this tomorrow when the forecast is for a break in the storms.