Replies to post #2969 on ajtj99's Market Pulse

[Trade Hard]

Agree. In January 2000 BPI was at very high levels and yet we rallied fiercely into March 2000.

From Fred Goodman at trendmacro.com:

The American Association of Individual Investors were so bullish that they moved the 8-week average of bulls as a percent of bulls plus bears back above the trigger line at 70%. The indicator will become negative when it again drops below 70%. This indicator, like the percent of newsletter writers that are bullish, is a contrary indicator. A sell signal occurs when too many of the cohort are bullish and too few are bearish. The situation is now so outlandish that I want to show you just how far out of the ordinary this opinion poll has become.



The next chart presents just the bulls, and goes back 5 years to the summer of 1998. You can see that today's bullishness of 71.4% is the highest since January of 2000, and you remember what happened a few months later -- there was a sharp pullback immediately after that display of bullishness, and it was followed by a couple of rallies and a 2-1/2 year market slide.



Now let's look at the bears. There were only 8.6% bears in the crowd yesterday, the smallest number since October 2000, just after the decline started to pick up steam. So here we are, the trading public thinks we're going back to 1500. It is only the traders, who are trading many more puts than calls, and the insiders, who have been selling their company's stock for months, that think the market has some retracing to do before the rally can resume.