Live Update

Friday, April 10, 2009

Mixing Sentiment Trading With Technicals

A very good comment from Eric, I think it’d be a waste if I let it buried into my comment area. So I have it reposted here. Eric also has a blog listed bellow if you’d like to pay visit and say thanks.



If you get the technicals right, and the sentiment, You can catch the Turns.

If your bearish or bullish, to a trader doesn't matter.

Bears must Capitulate on the tops or bulls must capitulate at the bottoms....

and that is "The Turn".

I don't want to have a "Bearish or Bullish Bias", I'm here to make money.

But sentiment wise... all the top callers have to stop talking about it, for it to happen. And that doesn't mean you, it means you should look at all the sentiment from the market, and try and figure out where we are.

The luke warm response on Cobra's post (2 reply's) shows limited acceptance to his upside notion.

If one can't call a bottom... why would you try and call a top? Trade only what you see.

But nobody will read this because.... For the most part the only analysis people want is the analysis that agrees with how they feel And that is the easiest way to lose money.

I was asked to explain why if "the Bears Covered today" Why that isn't capitulation.

Real Capitulation is when the Bears give up and become Bulls.

So here is some sentiment from today:

I quote:
"Fly on Wallstreet":

April 9, 2009 – 3:56 pmSold out of 85% of my SRS and FAZ positions."

Is that Capitulation? selling 85%?

I quote Cobra:
"I'm still bearish, "

Have you looked at Clusterstock?

"Morgan Stanley not out of the woods yet"

From Big Picture:

"Congressional Panel: Fire Managers, Liquidate Banks"

As they say "Every Great Rally STARTS, with short Covering", so if this is short covering, it MAY be the beginning of this leg.

One might also remark how Skeptical people are about WFC. I'm not saying anything about the "Reality" of it, just that people were Skeptical. All over T.V. Today they talked about the earnings... But almost every time they would talk about how "They still weren't done with the Write downs!"

(Again, I'm not taking sides, I'm just talking about the "Emotion" of the market.)

The interesting thing is that for all the people who know "you can't catch a bottom", There are certainly a ton of people who are willing to "call a top"... For what is it 4 weeks? almost every day everyone screams "That is the top, Short the banks"

Trends "Tend to end" when the last thing in the world that you want to do, is Sell. We are still too Skeptical. Just like you have to "Buy them, when you are Crying", you also have to do the opposite on the Tops, Sell them when it's the last thing in the world you want to do. You have to think it's so crazy to sell the market right here. It should be obvious that Everything is great, and the Rally will never end.

What we need to see, besides the Bears gone(short covering/capitulation), is for them all to turn into Bulls.

At that point "Everybody is long", there is no more upside.

Also Cobra will look at the downtrend line from all the Highs since the Crash, and realize we are all Right up against it. With the market closing on it's highs, we should pull back on Monday, but once all the people who see that we have broken that trend, we will trade the Break out.(Probably)

Also if one Reads EWT, this is more like a Wave 3 with 240 Dow points on the day, Meaning we still need the momentum to slow down. Maybe a pull back on Monday, then 2 days of say 50-20 pt upsides. The market is like a truck, it does not Turn on a dime, it takes days for momentum to slow.

we should see some resistance here.... Below the Trendline. Then we will see, But One should try and measure sentiment Every day. And certainly there is a chance we will break the Trendline and find it to be a "Bull Trap"

But if all that happened was short covering from the bears,one would say this more like a middle, The true top is when EVERYBODY goes long. At a great Tradable top, everybody should be doing everything they can to go long, Not just short covering.

I look at the market like a boat, everybody running from one side to the other, but what you want to be is the first guy to turn around and go the other way, but time it so that the "Last fool" just hit the Guard Rail.

Out of Cobra's blog, we may want to see say Cobra make a bullish call, and for us to have about 15 Positive Responses in the comments. There are a Thousand Blogs out there, and you can use any number of them to Measure sentiment.

Of course I'm breaking the Heisenberg uncertainty by saying this here, but with so little comment, I'd say there is little interest in this post.

I imagine that most the Bears spent the day Under the covers, and probably covered at the close. But after a few days of bullishness, which they will disbelieve They will Finally be willing to "Go Long" at which point we can Build a tradable top.

But this trend has been Unusually Bearish, Regardless of what is on CNBC, Seems like There are tons of "disbelievers".

Let me also suggest how all the "Followers of Roubini" who are Waiting for SPX 600. If you apply any form of game theory to that Target(I know that they are going to buy at 600, so I'll buy at 610, But I know that they know I'll buy at 610, so I will be smart and buy at 620... ETC)--- 666 wasn't out of the Question, as a very real bottom.

I can add even more, bullishness as some of the Hedgefunds and Mutual funds, Spend the weekend and start to think... "maybe this was it" If Wells Fargo can make money, maybe that was the Bottom. and maybe we should put some more money to work next week. And if that works, they will keep spending, Until they are out of Cash.

Many of these people over the weekend will come to the realization that "maybe I'm wrong about my Bearishness" "maybe this isn't Great Depression II". And maybe they will "Just try and deploy some cash next week.

I'm not saying anything about the "Reality" of any of what people think, I'm not interested in having a debate about CDO's or Bank Solvency, just the sentiment. I'd suggest that you don't believe anything that people say, But try and figure out what they are doing "based on what they say". Every person who talks about how they "Feel about the market". You should look behind what they are saying and realize that what they say reflects their position in the market, Every talking head talks his market position.

To make it simple, "Besides Bears giving up(capitulating)... They may actually need to become Bulls.

Sentiment changes fast, We could wake up on monday, and see everyone "go Long". So you have to invest almost as much time Researching Sentiment, as one would spend Looking at charts.

But I'm not the Real Pro at this, If you are looking for this kind of trading. The Real Wizard is Teresa Lo.


  1. Cheers for that info. I read it. LOL

  2. I was so excited to see commentary from Cobra on an off day, and then it turns out that it isn't Cobra's commentary.

    Hope --> Excitement --> Disappointment

    That is the sentiment cycle I endured today with Cobra's blog.


  3. I've been keeping up with numerous commentators on a regular basis for years. I try and get a good feel for market sentiment based on reading a mix of opinion as it helps my trading.

    I have to say that this comment of Eric's is one of the most profound, if not the most, that I've ever read. Please accept my gratitude Eric and Cobra for having the good sense to highlight it.

    I'll be adding your blogs to my reading list Eric.

  4. Excellent read. Very insightful on how the market slaughters the easily swayed, and how to stay ahead of the game via contrarian actions. One of my other favorite reads about dealing with unexpected market swings is here ...

    I will definately be watchin Erics blogs. Very excellent post.

    ps ... SPX 666 will not be the bottom.

  5. LOL, those blogs are my friend Tony.

    My blog is

  6. Modified. I got that 2 links from your profile. Sorry.

  7. I didn't even realize it was wrong,

    Thanks man!

    sorry about how scrambled it is, not bad for a quick type over an hour.

    But if you want a literature professor... how good a trader would I be?

  8. Too bad, you've missed the opportunity of around 5,000 visits. Well, next time, if only you have very good comment. :-)

  9. Eric:

    That is outstanding stuff. You could probably pawn yourself off as an psychoanalyst and make $200/hr but I would guess that you're doing way better in the market running between railings.

  10. Could the S&P go to 1000 around the 200dma over the next couple of months, sure but reality and fundamentals will catch up eventually, I don't trade inter-day but I'll be looking to add to the bear mutual funds when we get there. The problem with our outsourced, Mc Job, consumer spending based economy is too much debt and the government adding more debt to prop up insolvent banks will only make things worse in the long run expect headline unemployment to be 11% and U6 over 25% in 6 months.

  11. Anyone holding gold or silver? Got any good suggestions for gold and silver stocks?

  12. Ahahaha check this out



The information contained on this website and from any communication related to the author’s blog and chartbook is for information purposes only. The chart analysis and the market recap do not hold out as providing any financial, legal, investment, or other advice. In addition, no suggestion or advice is offered regarding the nature, profitability, suitability, sustainability of any particular trading practice or investment strategy. The materials on this website do not constitute offer or advice and you should not rely on the information here to make or refrain from making any decision or take or refrain from taking any action. It is up to the visitors to make their own decisions, or to consult with a registered professional financial advisor.

This websites provides third-party websites for your convenience but the author does not endorse, approve, or certify the information on other websites, nor does the author take responsibility for a part or all materials on the third-party websites which are not maintained by the author.