Strength in the market over the last four days has increased the odds that the market action since the April peak is a basing action, rather than a consolidation prior to new lows.

Let me try to clarify how I feel here, because I think I have sent some mixed messages in recent days. I am bullish on investing in stocks and have pointed to an overwhelming pessimism as support for the market to go higher (darkness before the dawn, small investor wants no part of the market, etc. )

On the other hand I thought the market would have a more difficult time crossing DJIA 10,275 (S&P 500: 1085 ), at least without a consolidation first. It has done better than I expected and that makes my assessment at this point – partly wrong.

I think I have been on the money in terms of not chasing stocks after a sharp upmove per the extreme volatility since the April 26 high. Since then, the DJIA has rallied four times ( +12%, +6%, +9%, +9% ) and declined ( -13%, -11%, -6%, -10%, -4% ). It is currently up 3.7% in four days.

The major market averages are on the threshold of crossing their 200 day moving average, which would be heralded as bullish and could pop the DJIA to 10,600 (S&P 500:1130 ) near-term. Nimble traders can play such a move.

I would feel far more comfortable with a sideways consolidation before a breakout, but the market wants to run.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Monday, July 26, 2010 9:24 am EDT

DJIA: 10,343.72
S&P 500: 1102.66
Nasdaq Comp.: 2269.47
Russell 2000: 650.65

On July 20, I noted the biggest thing the bulls have going for them is EVERYONE, and especially the press, is overwhelmingly bearish.

In the eyes of the public and the press, there never was a glass half full, just half, or more than half, empty.

Obviously, no one informed the stock markets. The major market averages have soared since early March 2009 with the DJIA up 61%, the S&P500 + 65%, Nasdaq + 79% and Russell 2000 + 90%.

While recent economic reports have indicated a softening, the economy is in recovery mode.

The smart money used the worst of the news and depressed stock prices to buy well ahead of these stellar advances in the market, knowing if it waited for the news to improve, it would have to pay up for stocks.

I blame the press whose glass is always half empty. They know better, but given a choice between an upbeat, but truthful, and one that scares the crap out of a reader/viewer, they opt for the latter. Throw in some self-serving spin, and the public doesn’t have a chance. They have done, and continue to do, an injustice to the individual investor.

“The story” is, we have survived (by a whisker ) the worst economic and financial debacle since the 1930s, and stocks are still attractive, especially looking out a year or two.

According to a Bloomberg.com report, institutions increased stock holdings to 68% from 63% in July. Meanwhile pessimism among individual investors rose to 57% on July 8, the highest since the bear market bottom in early March 2009, according to data compiled by the American Association of Individual Investors (AAII ).

In fact, the last time the gap between institutions and individuals was this great was also at the bear market bottom.

Legg Mason Capital’s, Bill Miller calls this a “once in a lifetime opportunity to buy stocks of large U.S. companies.”
The BIG questions are, where will this market be when all this pessimism lifts ?

Is there room to run on the upside ?

I would think so, the DJIA is trading 28% below its October 11, 2007 bull market high when the unthinkable problems began to surface that resulted in a 55% plunge in the blue chip DJIA.

George Brooks
sensiblesleuth@gmail.com