This week is supposed to be a big down week according to a few top traders I follow. It is supposed to be a potentially pivotal week. One of the main arguments being the mass complacency in the market right now based on sentiment figures.
This market sentiment chart is only up to date to August 4th, and I imagine the latest data point to even higher bullish sentiment. I believe we are seeing bullish readings that are as high as existed when the Nasdaq topped out in the year 2000. From a contrarian perspective this is a concern.
It means that too many people are on one side of the fence and it could mean we could be in for some nasty and sharp downward spike corrections that catches most people off guard. That is typically how it always begins. You get this near zero volatility market action that puts people to sleep and gives them high confidence that the market just cannot break down. Then there is one key day that turns into a huge down day causing significant short term technical damage to the market trapping those who are heavily long. Then you get a more involved correction after that as fear starts to replace the complacency.
You have heard me talking bullish on the broad market and making mid 1970’s comparisons and saying that we have good potential to go much higher. I am still biased to that side. But how we get through the seasonally dangerous months of September and October remains to be seen. If we can get through these two months without too much severe damage then I see us getting a good stepping ground into end of year.