Bearish sentiment has gone up dramatically toward the equities. U.S. Treasuries (TLT) are the hottest buy recommendation by all the financial advisors and media. As flock traders are being brainwashed by the media about an imminent financial catastrophe in Europe, you have the perfect storm set up for a great buying opportunity if the market drops again.

This is why we leave half our portfolio in cash when we are long in the equity ETFs. You need to have money to go shopping when stocks go down hard. Everyone is wondering how far stocks and commodities are going to go down. That is precisely the time to do the exact opposite and buy aggressively. We believe right now the single most important issue is the percentage of allocation; timing is secondary. When you are investing and trading, it is critical to know when to accelerate your buying or selling.

We have no idea how low the S&P 500 or the Dow will go. However we are confident that the total number of down days is sharply decreasing. Any decline will have to happen very soon. This is the ideal opportunity to progressively increase allocation. When almost all your friends are shaking in their boots and are likely selling, then try to remember a similar scenario at the end of September 2011 and the turn around on October 4th.

If you want to know who is going to be in trouble, just look at the insanity in the TLT and Treasuries. TLT’s price closed on Friday, June 1st, 4% higher than their peak on December 23rd, 2008, when everybody thought it is the end of capitalism. Guess what happened. Six months later TLT and US long-dated Treasuries (a safe-haven asset) lost 28% of their value.