A Consensus Killer

In early October bearishness hit levels not seen since the Bear Market of 2008-2009. The market proceeded to rally 20% in the span of a little over three weeks, creating great anxiety as most market participants were either run over or left behind.

During the entire run up the majority of market participants were fighting the rally. By late last week it seemed the majority of market participants had finally embraced the rally. Rydex traders were positioned aggressively, the AAII survey showed individuals as optimistic as they have been all year and talk of a year end rally with new highs grew loud.

We find ourselves this morning with the market down nearly 6% from its highs on Thursday, with the consensus once again caught leaning the wrong way. This market has absolutely brutalized the consensus.

Sentiment analysis has been the only way to catch the twists and turns in the market. Right now it seems the crowd is caught bullish. From a pure sentiment standpoint it is likely too early to try and catch a bottom, although 70 S&P 500 points in less than 3 days could lead to a bounce.

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