subject: The Next Move For The Market May Surprise You [print this page] Expect the Unexpected
The bears confidence is strong and the recent downturn is only strengthening that confidence. The bears conviction has been strong for months though and the markets have just kept going up.
Thats why, as contrarians, we should be looking at the what ifs that no one is expecting. Remember, the market has a tendency to do the exact opposite of what most market players are expecting. Thats why, in the short-term, we could see the run-uphold onto your hatscontinue.
The amount of bearishness out there is still extreme.
A little over a week ago James Grant, a well-known and highly-respected perma-bear, officially turned bullish. In his Wall Street Journal article, From Bear to Bull, Grant made a case for why the market could sustain current levels and the economy could recover much faster than most folks expect.
But heres the thing. Grant was universally maligned. He has been the steady hand of the bears for years. And he has been a welcome ally during this rally. His proposal about a quick economic recovery was attacked from all sides. It was almost like the bears took it personally.
The near-universal vilification of Grants betrayal is just anecdotal evidence of how much bearishness still remains. Theres firmer evidence in the bears conviction. And its something that doesnt happen often.
Holding on Tight
Back when the evil short sellers (those who bet against stocks) were being attacked from all sides (its almost too easy to attack someone whos making money when most others are losing it), we looked at the reasonable and value-added role they play in the market. Still though, the short sellers on Wall Street arent a popular bunch when it comes to public opinion. But they can help show us where the market may be headed next.
Every couple of weeks the major exchanges publish short interest data the total number of shares sold short. This way you can see how big the bets are against the stock market as a whole.
Normally, short interest increases as markets go down. In a downtrend, the hot money traders get on board to ride the trend for all its worth. In an uptrend, short interest will decline. Shorts have to cover, or buy back, their bets against stocks.
Thats all the rules for a relatively normal market. Were still a far cry away from normal and thats why Im extremely interested in the recent short interest data.
by: Carly Walton
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