The headlines are starting to pick up the similarity of this year's market action with that of 2010 and suggesting that the stock market is ready for a correction similar to the one we saw from April to August of last year. It's certainly possible, but we don't think so.
As we try to analyze this market, we continue to try to guess what it will take to repair the cracks in the psychological "Wall of Worry." I think that the American Association of Individual Investors Bull/Bear Survey tells today's story pretty well. In our studies, we optimally average a 3-week timespan, and to really get a good powerful signal that the bearish sentiment is to strong levels (in comparison with bullish sentiment), we would like to see the line in the chart below reach 1.5 to 2 times as many bears as bulls. As of recently, it's been pretty close to being evenly divided; it's a stand-off.
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Also, in the chart above, you can see that the correction last year led us to coming close to having 3 times as many bears as bulls. These emotions can occur pretty quickly, so we'll keep our eyes open for any significant change. You can almost feel a little different kind of fear starting to creep in now, and we don't think it will take much to turn those "sitting on the fence" into full-fledged bears. It will probably take a little more time, but remember, our emotions are our worst enemy.
So overall, the indicators say (even if it turns out to be a similar correction to that of 2010), that this is a time to be very, very bullish and give the benefit of any undecided emotions you have to the bulls.
To view today's complete Market Comment, click here.
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