All the Bears are Talking About “Too Much Bullishness”

Here we are, with almost all the indices breaking out to new recovery highs-bettering those levels made 8 months ago in April.  We've been telling you for about a month that the Psychology, especially "dumb" psychology, moved to the "yellow" zone (ever so slightly) into the negative side fo the equation.  When that happened, we said it was okay to do a little portfolio pruning, but to not raise your cash levels above 10%.  It didn't last long as the McClellan Oscillator dipped down in oversold territory, and on November 24th, we said it was okay to do a little "nibbling."  All this short-term "stuff" takes a back seat to our Asset Allocation Matrix that is designed to show the allocation for long-term top-down investors, and it is saying to continue to have maximum allocation to equities, and minimum to cash and bonds.

So, I guess the theme is that those few investors that are out there doing anything are bullish, but not many are doing anything.  We are seeing that in the short-term, Psychology has turned too bullish, but we hope that the contagion spreads to the more cautious investors sitting in cash.  There is still a huge amount of cash sitting on the sideline, and it is my belief that is what Bernanke's QE2 is designed to accomplimsh-to get that money working.  You can see this development in the chart below.


So, just remember that old adage, "You don't fight the Fed."

To read today's Market Comment, click here.

Don Hays

Please see important disclosures at the bottom of this page.