THE MARKETS AND THE SENTIMENT

US markets are in the longest rally since last October. Which shows again this is a bull market where we have to buy the dips and ignore all the bubble bursting narratives. This is far not yet a bubble. But why made the markets great rally last week, last October and February? That is the great question the rest is only a conversation.

Cause there is one common thing in those three great rallies, namely the sentiment of investors. Take a look at this chart. All 3 rallies in the last 6 month happened when the retail investors were most pessimistic and when they were mostly bearish. I use this AAII statistics as a stunning contrarian indicator. When is the Bulls/Bears sentiment is reasonable low – meaning less the 30% of investors are bullish we should buy SP500 index because there is always a good bargain at those periods and shortly after the market will do a nice bullish rally. In the last more than 2 years all the best days came right after when the retail investors were mostly disappointed and being pessimistic about any rally. And, we only have to be more cautious when they are getting optimistic on the tops. That is the simplest was to make money on the market and honestly I haven’t found so far any better explanation why the market performed well at those three periods since October 2013.

Yesterday the SP500 closed slightly higher due to Eastern holiday but as we anticipated earlier the SP500 after the last week rally hit the 1.870 level and now could come the next key resistance level at 1.890. So today all European markets after few days closure will show a really green day with nice and impressive gains. We bought last Thursday many long positions in DAX, FTSE, IBEX, CAC40 so we are going to harvest today and in the following days.

The BFM Assets Team.