A Strong Market Rally Followed by a Significant Change in Investor Psychology

It's December, and for investors, that is good news...usually.  We think for 2011 that it's especially GOOD news.  Usually when you see a November that's not so good, it makes December even better, and November was NOT so good this year.  We ended last month with the mood dismal.  It was only one week ago that we blared out the only good news we could find was that our Psychology Composite had moved to P1.

So here we sit, with this action since that momentous signal that often only comes at the end of a major bear market or correction, and if you look at the different industry groups as measured by Dow Jones, you saw this type of action last week.

That was one strong week.  In fact, it was one of the strongest weeks in stock market history, and it goes hand in hand with the news that we received last week.  Furthermore, the intense rally last week pushed our Psychology Composite from a rating of P1 to a rating of P3, which suggests a strong change in investor sentiment occured.  The specific indicators in which we saw significant changes occur were those related mostly to leveraged investments, option activity, consumer confidence and volatility.

It is as natural as day following night that we would see emotions go from bleak to not so bleak when we've seen a week as strong as the one we saw in the stock market last week, and so hand in hand, we'll keep on enjoying this continuation of the bull market.

Don Hays

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