In yesterdays blog posting, I wrote about a significant development, in that even though the market is up over 5 %, a sentiment shift has taken place. I have to think back a long time to try and remember when I have seen this before. I just can’t come up with a year, time of era. It may have happened, but I don’t remember it. I have been following this little unknown tool for decades, literally. Since the early 1980’s, if you can believe that, its true.

The point here is, this is significant. Usually, market newsletter writers are trend followers and seem to do as badly as the general public as a group. I am sure there are a few who do well long term, with one guy that comes to mind, “Bob Brinker”. I have heard him on the radio off and on for many years and he is pretty good as far as being on the right side of the market as far as the big picture is concerned.

Today’s market reversal, was a good sign as I mentioned yesterday that my gut says, this market does not give up much ground. Normal market behavior could easy have the market retrace a little from here and even if we do, that would create an even more powerful move once it happens. So, all is well as this develops into a very nice upcoming surprise for the bears.

Long term, somewhere down the line, I am a growling Bear, but this is not the time. I wrote about this kind of stock market psychology before. The market never does what the majority think or want it to do. You always have to look at it from that stand point. There are many other stock market psychology indicators that are of benefit, but I just don’t follow them. The put/call ratio has been one that is pretty good and the volatility index is another (actual name slips my memory), but as mentioned I don’t follow them. This one I do follow and would have to call it OL’ Faithful. I have never seen it fail, never.  The only time I have seen this tool lag, is when you get massive drops or rises that extend for long periods of time. One of these recent scenarios is the big market drop of 2008 and 2009. Take for example, just from memory, we had extended bearish reading for a long time and they were extreme. It lasted for weeks, because the market was going down. Here, it is obvious that the market was going down and no one was bullish at the market bottom, except me. There you could not say, see, we have a very bearish reading, which should produce a bullish reaction. Up to that point, the bearish extreme reading had been in effect for some time, but at its most extreme reading, did signal the eventual turn around. It was  March 9th of 2009 that I saw this most extreme reading. The least amount of bullishness in decades. I used that along with a few other things to write in my blog, that the next day we would see a market move of several hundred points. From memory, I believe I used a figure like “Tomorrow we Rally 280 points minimum on the Dow”. You can go back and check, but I said something like that. We rallied a few points shy of 400 Dow Points in one day.  One of the clues I looked at was this market extreme reading. There were a few other technical factors, but this gave me big insight.

I will give you the last two signals we received from the market and you can tell me if you would not have liked to have know that information at that time. What could you have done if you had a high 90% chance that we would make a significant lasting move over the next several weeks. You could change a few things in your life, for sure.

The dates the last two signals given were, February 9th, where we saw a  34.1 % Bullish signal trigger and May 4th, where we saw a 56% Bullish signal trigger. The extreme trigger points are 35% Bullish or less, a minority position, will bring in a lasting move in the opposite direction. With a Bullish reading of 55% or greater, you will soon see a lasting significant market move in the opposite direction. The top in January also produced a large turning point signal.

Go to a daily chart and look up those dates. Tell me, what kind of strategy could you come up with as a trader if you had this almost “crystal ball” knowledge. Any investor or trader should be able to come up with something.

I don’t use this tool in a way that I could, as I am explaining.  To capture large moves in the options market or some other vehicle, but I will one day. This is not going to stop working any time soon.

In writing about this, I am getting motivated to form a mega $ strategy around this. OK, more to come. I just lost power and now working on back up power

The days turning points below, with a stock chart showing the applicable turning points, and yes I had a good day in the markets, staying with the long term turning point for maximum gains. Good Trading,  Vince.

Related posts:

1. Market Sentiment Turns More Bullish – Trader Beware !
2. Bullish Sentiment backs off- Room to Rally
3. Bullish Set-Up or Bear Trap