Monday, November 12, 2007

Bearish Sentiment Returns???

The stock market made an attempt to rally on Monday but at the same time the four horsemen were headed in the other direction, charging South. Our new index, the FSI which stands for the Fo(u)r Speculation Index until someone can come up with a better name, has plummeted over the past few sessions dropping over 5% per day for three days in a row.

As a reminder, there are four stocks in the index and those would be AAPL, AMZN, GOOG, RIMM. The drop in these stocks has put a chill on the NASDAQ 100, NDX, which itself has dropped over 11% in the past four trading days. With such action, the fear is now that the four horsemen may be telling us there is a bear market in place. This talk has us shaking our heads once again since it means that just when we were getting the market going on the downside sentiment has shifted. This could easily suggest a bounce is in the works.

According to some, this drop is just a little correction that will lead to a bit of a rally and then another decline. This decline would be contained to levels above where we are at present and cause buying to come in to drive the market to new highs for the move. What might actually happen is that the leadership would move to new highs but the broader market won't be able to go to new highs which means the move would be the last.

We think the leadership is mostly in speculation and mostly represented by our FSI. These stocks are not currently in a position to lead the market anywhere but Down. That could change as we are solidly oversold, the sentiment is starting to get a little bearish, and the Thanksgiving holiday is fast approaching.

You can keep an eye on the FSI to get some clue as to where the Market might be going:

Arithmetic price weighted average: 93.75
Market cap weighted average: 92.17

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