We start the new year like we ended the old year: with a mixed sentiment picture. The Rydex market timer is extremely bullish, and this is a bear signal. The “dumb money” indicator is neutral and company insiders are as well. Overall, my interpretation is bearish. Sustainable price moves usually start when there are too many bears, and it is short covering that is the fuel that sparks a price rise. After the short covering subsides, sustainable price moves are typically heralded by having too many bulls willing to chase prices higher. Neither of these extreme conditions are currently present, and it is difficult to see the market embark on a sustainable price move in their absence. Lower prices would bring out more bears and this would be a precursor to a tradeble, sustainable rally. Higher prices should be supported by increasing number of bulls, and this would be a signal that a sustainablerally, that everyone so desperately wants, is unfolding. As stated above, I am betting that we will see lower prices before higher as there are few bears (i.e., no short covering) and as the time for the bulls to have taken the reigns of this market have long since past.
