subject: Obama Rally: Many Think it Should be Sold [print this page] When politicos jawbone the markets higher in media driven events with a hand picked audience it seems silly not to fade this as a selling opportunity. As a lifetime commodity trader and market watcher, I saw today that Bob Prechter also thinks the rally is a sale. He notes that the market is acting much like 1930-31, and also notes that the Flash Crash was the first in a series of legs down.
" ...The wise move now is to sell this recent rally, says Robert Prechter, president of Elliott Wave International. "I think we're getting ready for another leg on the downside," Prechter says, citing evidence of what he says are extreme levels of optimism, including:
-- The most-recent AAII poll shows bearish sentiment at 24%, less than at the Dow's peak in October 2007.Mutual fund cash positions being at record lows, which Prechter says should be taken at "face value" rather than the result of massive redemptions from equity mutual funds. The TRIN Index (a breadth indicator) at one of its lowest levels in recent years, indicating extreme buying pressure of stocks at 52-week highs, i.e. investors chasing momentum/performance.In addition, Prechter notes volume has beenlow during the rally in recent weeks a sign, to him, that buyers lack conviction.
The veteran market-watcher says the current environment is similar to the 1930-31 period. "The market can make its high while optimism makes a peak despite the fact you're going stair-step lower," he says. "What we had in May with the flash crash' was the first wave down."
Prechter predicts these periods of downturns sandwiched around 4-5 months of recovery "where people think we've hit the bottom" is likely to "go one for quite a long time" until a true bottom is reached well below the March 2009 lows, much less today's levels
