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A Pause in the Bernanke Asset Bubble Starts Now

By Dr. Steve Sjuggerud
Monday, December 13, 2010

My True Wealth subscribers have been making a fortune from the Bernanke Asset Bubble...
 
The secret has been to STAY IN THERE.
 
It's simple: Fed Chairman Ben Bernanke won't care at all if he causes asset prices to soar in just about every category – stocks, gold, commodities, whatever. He won't care because bubbles here are simply the "collateral damage" in his campaign to get the economy going again.
 
 
So True Wealth subscribers have pocketed big gains as the bubbles inflate, simply by hanging in there. (I've pounded DailyWealth readers over the head with the "stay in there" idea, too.)
 
It was easy to get into this trade back in July, when investor sentiment was terrible. That's when you want to buy stocks. So that's what we did.
 
In the July 9 DailyWealth, my headline was: "A Three-Month Rally in Stocks Starts Now." At the time, only 21% of individual investors were bullish on stocks. We got in.
 
I reiterated my confidence on September 1, for the same reason. My headline then was: "There's a 98% Chance Stocks Will Be Higher in 90 Days." The sentiment level was the same... 21% of individual investors were bullish. It was an incredibly low reading.
 
Today, we're in the opposite situation.
 
Today, "the Dumb Money is 71% confident in a rally," my friend Jason Goepfert wrote. Jason tracks investor sentiment through his website SentimenTrader.
 
The last time the Dumb Money was this optimistic was back in April, right before the Dow lost a quick 1,500 points in three months.
 
At this moment, a truckload of Jason's indicators are flashing warning signs... "We now have more than 40% of our indicators with a bearish extreme," Jason writes, "and 0% with a bullish one. This is only the third time since 2000 we've seen such a thing."
 
Also, Rydex mutual traders trading the Nasdaq 100 Index "now have 34 times more money invested in the long fund versus the inverse fund, which is the highest ratio since the bubble days of 2000 and early 2001."
 
It's never cut-and-dry with investor sentiment. It's more a weight-of-the-evidence thing. And right now, the weight of the evidence is clearly negative.
 
But here's the thing: When investor sentiment peaks, it DOES NOT always mean the stock market will fall. Quite often, in a rip-roaring bull market (like this Bernanke Asset Bubble), you could see the market move sideways for three months instead of fall off a cliff.
 
Investors are optimistic right now. It's a danger sign. The market might not move straight up over the next three months. It might go nowhere. It might fall. But ultimately, I think the Bernanke Asset Bubble has the ability to steamroll over this sentiment indicator.
 
We have the potential for a setback in the market. But I prefer to stay in stocks, with a close eye on my trailing stops.
 
I recommend you do the same...
 
Good investing,
 
Steve




Further Reading:

Six weeks ago, Steve told readers to sit tight. "Don't sell your winners now for a quick profit," Steve wrote. "Now, more than ever, don't accept a single when you can hit a home run." It was the right advice... Stocks are up another 4.5%. You can follow that same advice to a tenfold return or more. Learn how here: How to Turn a 100% Gain into a 1,400% Gain.
 
If you're taking a cautious turn on stocks here, don't miss Jeff Clark's Saturday essay. He shows readers the one number to watch next year. Get the details here: The Early Warning Signal to Follow in 2011.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
CNOOC (CEO)... China oil giant
Chevron (CVX)... U.S. oil giant
Vale (VALE)... steel giant
Rio Tinto (RIO)... steel and aluminum giant
Freeport McMoRan (FCX)... copper giant
Caterpillar (CAT)... construction equipment
CNH Global (CNH)... construction equipment
Joy Global (JOYG)... mining equipment
Deere (DE)... farm equipment
Apple (AAPL)... iPhone, iPads
Texas Instruments (TXN)... semiconductors
Broadcom (BRCM)... semiconductors
Analog Devices (ADI)... semiconductors
Maxim Integrated (MXIM)... semiconductors
United Parcel Services (UPS)... shipping giant
Automatic Data Processing (ADP)... payrolls
Monster Worldwide (MWW)... job search
American International Group (AIG)... appreciates the bailout
BP Prudhoe Bay (BPT)... oil royalties
Take-Two (TTWO)... video games
Brown-Forman (BF-B)... booze
Brinker International (EAT)... Chili's restaurants
Starbucks (SBUX)... expensive coffee
Whole Foods (WFMI)... expensive groceries
Deckers (DECK)... expensive boots
Movado Group (MOV)... expensive watches
Weight Watchers (WTW)... anticipating New Year's resolutions

NEW LOWS OF NOTE LAST WEEK
 
Not many...

In The Daily Crux



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