The Market Message From Minneapolis
by Tom Dyson
March 20, 2006
The stock market has not corrected in three years.
Last Wednesday was the third anniversary.
A correction is defined as a 10% or greater drop in the benchmark S&P 500 index.
It’s only the fourth time in over 100 years that the market has experienced such smooth sailing. The other three times, this happened, the market plummeted at least 10% - and as much as 35% - within the next six months.
Think of the market like an old man. The older he gets, the greater the probability he will die soon.
But don’t sell him short just yet... the market still wants to go higher. And the best opportunity to go short – if you’re interested – is still to come. This isn’t my opinion.
It’s the opinion of the expert futures trader I met last week.
Here’s the whole story...
Jason Goepfert is a sentiment trader. He takes large positions in S&P futures, often leveraging his whole bankroll into one position. To control his risk, he only trades in micro-term, which means he never holds a position overnight.
His decisions are based on market sentiment. As a general rule, if the market is feeling optimistic, he sells short and bets on falling stock prices. If he senses fear, then he buys the market and bets on rising stock prices. I counted over two dozen sentiment indicators on his website, many of which he invented himself.
I met him in Minneapolis last week.
Last Monday – the day I met him - the S&P opened at 1,281… just 16 points shy of a new 5-year high. Given the positive trend in the market, I expected Jason to tell me how optimistic investors were, and how much complacency he felt in the market.
I was wrong.
Over lunch, Jason explained that the most recent survey of newsletter writers by a service called Investors Intelligence was showing a bullish percentage of only 42.7% - a relatively BEARISH level that marked lows in the stock market in May 2004, August 2004 and May 2005.
Then he told me his Rydex indicator was showing the same thing – that investors were currently indifferent to the market. Rydex is a mutual fund company and offers funds for both bulls and bears. By comparing money flows in the bearish fund with the money flows in the bullish fund, Jason gets a good indication of investor attitude.
Investors are indifferent... yet the market is just shy of a new 5-year high?
“I feel like a final surge is on the cards,” he concluded over lunch. “But that’s all it’ll be... this spike will be a great opportunity to sell.”
Since my meeting with Jason eight days ago, the S&P 500 has made a new 5-year high and, as I write, is up about 25 points...
The first part of Jason’s prediction is coming true... Are you ready for the second act?
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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