Sam Collins

How to Play This Market

by Sam Collins   10/09/09

Free Trading Guides

 

But for those who aren't trading, it's best to just stick with the trend as long as stocks don't get too far above their 200-day moving averages and the various support zones hold. For those investors, the weekly sentiment reports will provide clues as to whether the broad market is still being supported by "smart money" and sold by "dumb money." 

Two valuable sources are the American Association of Individual Investors (AAII) weekly sentiment and Advisors Sentiment from Investors Intelligence.

The AAII numbers have been flipping back and forth, and for the week ending Oct. 8, AAII says that 35.09% are bullish and 41.23% bearish. This is a reverse from the last report of 43.55% bullish and 35.48% bearish, but is also a reverse from the week before, and that a reverse from the week before that. 

The Advisor Sentiment numbers show that the bulls have moved down to 48.9% from 50.6%, while the bears moved up to 24.4% from 23.6%. Both of these sources still favor a rising market, but their message is not strong, giving the impression that the markets may be slightly overbought.

It seems that whenever the major indices approach the top of the bull channel, to which I have so often referred, the market slows its pace and the sentiment numbers as well as the internal indicators show that a pause or mild pullback is about to occur.

That is where we are now, so traders may want to lighten up while longer-term investors may wish to hedge with calls or purchase protective puts while we wait this out for a better buying opportunity.

Today's Trading Landscape

Earnings to be reported include Crescent Financial Corp. (CRFN).

There is only one significant economic report due: international trade (the consensus expects $-33.0 billion).

Late news: The Asian central banks intervened overnight in the currency market in an attempt to support the U.S. dollar. 

---

The old ways of investing don't work anymore. But trading options founded on scientific principle can and does work in volatile times like these. Learn how to leverage the power of technical analysis to identify the short window when a trade is set to go straight up or down. Get your FREE copy here!