Suddenly everybody is getting fidgety, restless, and frustrated with this market. The media is full of doom and gloom. Most investors are becoming inclined to close out their recent long positions because they can’t tolerate this constant weekly up and down market. Memories of 2008 and February 2009 are still haunting some of the most sophisticated investors. The media is not helping. This is a classic market bottom forming environment. Patience will pay off handsomely.
As an investor, it is detrimental to conform to the norm and follow the herd even though your fear instincts tell you to close out your positions in risk asset and get into cash or Treasury bonds like everybody else. There is no shortage of bad news and sensationalism in the media and it can easily derail your mind and drag you down. After all, as the media tells you day after day, Europe is a mess, the U.S. is going to go down because of high debt level and unemployment, and there is continued political unrest in the Middle East.
Ironically VIX, the fear index, is showing lower highs and progressively dropping. VIX is a very reliable signal for the timing of trades. The stage is getting set for a stronger rally than even the contrarian investors anticipate. And when it does go full steam, there won’t be much of a window in which to get favorable prices.
Try to avoid the media brainwash. The current extreme sentiments are more often experienced at market bottoms than at market tops. We reckon that there is high probability of a powerful rally sooner than later.