Fade The Crowd

I continue to believe that the economy is unbalanced and that the market is well above fair value. Readers know I am not one to shy away from the short side. However, if there is anything I have learned over the years is that it does not pay to be short when the consensus is negative.

Looking at Rydex data, put/call ratios, sentiment surveys and anecdotal sentiment over the past few weeks has kept me away from the short side as the evidence has pointed to a bearish consensus.

There are times when the consensus is negative and the market goes down more. But for the most part it is not a bet that pays. That is a lesson I learned the hard way and paid a lot of tuition for.

We now find ourselves at the top of the range I envisioned and yet I am hesitant to put on many shorts. I am still not seeing the excessive optimism I look for before going short other than some silliness in small cap stocks. It is hard to believe that a 70 point rally in the S&P 500 has not made the crowd optimistic but the evidence of excess optimism is scarce. While I have added a hedge today I am not ready to go short.

No comments: