Sector Investing

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Thanks for bringing that too my attention. I have been fooling around with it for the last half hour or so using charts and it's just too limited a time frame using a highly manipulated set of data (not by you but rather by the FED) to end up being a good long term indicator.



That's not to say it won't be right again but when we try to call a market top I think that ultimately one single indicator is not going to get the job done at all.

What I am looking at now is a situation where the FED and both major political parties are doing absolutely all they can to support further gains in the stock market. As was pointed out last week in the Schaeffer's write up the 3rd year of a presidential cycle has been overwhelmingly positive on a historical basis. In fact 100% of the time since 1945:

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=58126840

So what I am looking for before we get the next true market top is the return of retail investors. That is to say much higher volume in the market as smart money sells its shares to what used to be dumb money like me. Every long term market top in the past has had these hallmarks in common. Tremendous levels of complacency in the face of weakening market internals at a time where the stock market had the highest volume levels of trading ever recorded even as numerous negative divergences were taking place.

Right now we have high levels of complacency but the spread between the Bulls and Bears in the latest Investors Intelligence Poll actually fell this week even though their are less bears:

http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx

 
 Date Published 	 Percent Bullish  Percent Bearish 
     12/29 	      55.6 	        20 
     12/22 	      58.8 	        20.6

Basically what I am saying is that many people, like myself, are still scared to return to full investment in this market. The FED has made money to big business very cheap to obtain without actually making many jobs for the average American. Ultimately I think the market is overbought enough now that it could fall after the first of the year but in the third year of a Presidential cycle how far could it fall?

Probably not much. As we get closer to our next election year if market volume picks up and the market breadth of any continued rally is showing an ever smaller number of new highs then look out below.

Me personally I could easily believe the market ends up touching down with historical lows for the P/E of the S&P 500 before we get the kind of bottom we saw in the 80's.

I'd be happy to keep this kind of discussion going indefinitely. I definitely admit I could be wrong about most everything I said here even though I think I am not.

Thanks again, RtS