With Dow Firmly Above 10,000, Has the Selling Finally Stopped?
Too bad for them the signals are still mixed.That's the conclusion of David Rosenberg, anyway. The well-regarded chief economist and strategist at Gluskin Sheff (and formerly of Merrill Lynch) is always worth listening to. Rosenberg, seen by some as a super-bear, argues persuasively that this is a technically driven market -- and the technical tea leaves taste just ever-so-slightly sweet.
"There is room to have an open mind in both directions, though we believe that there is still more downside than upside risk [to stocks]," Rosenberg wrote Thursday in a note to clients.
The major problem for the bulls, it seems, is that the market gains have occurred on lower volume, Rosenberg noted. That's considered a bad sign for stocks because it suggests a lack of broad-based conviction that shares will go higher.
No Comfort for Bears Either
But then there's plenty of bad news for the bears, too, Rosenberg said. For one thing, the market does have some technical strength, which portends further gains. The major averages are making technically positive closes and the ratio of stocks hitting new highs versus new lows looks good too, Rosenberg wrote.
There are a bunch of other positive signals as well, including more than 70% of companies beating earnings estimates and some higher guidance from key sector players. But perhaps most interesting is that investor sentiment has turned extremely negative.
Sentiment is what's called a contrarian indicator: When investors are bullish, stocks are set for a fall. When they're bearish, stocks are ready to rise. It's counterintuitive at first, but it makes sense. If investors are extremely pessimistic, everyone who wants to sell has already sold. The reverse is also true. When sentiment is strong, all the buyers have bought.
At any rate, Rosenberg's reading is that sentiment is surprisingly negative considering that stocks sold off a mere 8% from their most recent high. That's more good news for the bulls.
So what's the short-term trading call? Meh. Flip a coin. "This is an exercise to see both points of view, keep an open mind," Rosenberg wrote. "However, we [are] not waffling and maintain a cautious view over risk assets for 2010."