They say the market is near a top.

I hear people saying they are somehow a "contrarian" by selling here because they are starting to just hear friend and families are interested. But this can't be a top, there isn't any volume. I find it hard to believe that "everyone" is buying stocks when the amount of capital simply has not concentrated into stocks with nearly the same velocity as past bubbles. But those sentiment and bubble cycles happen on various timeframes, and certainly there was a bit of "froth" to the upward trend channel in the dow, which we have now sold off and begun working off. ( I Do not think we are done with a "correction", but that's all I think this is. I think we bounce, then head lower, then the bear trap hits and then markets launch and the public gets in at the end).

I have said that I believed it is entirely possible for a brief and very sharp correction around the world. I would expect it into September and October especially and of course it's ongoing in August. That will completely change the sentiment again on the short term cycle, and on the long term continue to fuel the "stocks are a casino" belief. ONE more REALLY GOOD shakeout I think before we break 16,000 in the dow and hit the long term "media attention".


I actually prefer the sentiment chart here:

But as to a typical "bubble", this is nothing of the sort, Bubbles break through their long term resistance and go parabolic, putting in yearly gains in a single month or two as they peak, with a near double coming in a year or less. The dow took 4.5 years to go from around 8,000 to short of 16,000. The nasdaq first from 1995-1998 to double from 1,000, and then still put in 2.5 times that. The Nikkei went from 6000 to 12000 from 1980-1984 or so and then went to 25,000 in 1987, pulled back to close to 20,000 and from the low around 1988 to 1989 it nearly doubled running to +38k again.  "You ain't seen nothing yet" if this is to be a bubble. Look at even the post 1987 crash low for the next 13 years. Dow went up 7.27 times that level. That would take us to +47000 by 2022, and the DOW wasn't even the "bubble" market during that time frame. The Nasdaq '87 low went from 288.5 to 5048.62 or 17.5 times the low. That would put dow above 100k by 2022. That would be ridiculous for a "non growth stock", but Whether it's a Nikkei run, or a dow run, the possibility of a secular run is ridiculously high to the upside. The long term bias must be to the upside because stocks can go up 100s of percent if not pushing 1000% (the famous "10-bagger" as it's called), and they can only go down 100%. Of course if your ACCOUNT is down 100%, you can never get back to even, and if it is down 90% you need the 1000% return to get back to even. So of course cash is still important, but the probability of it going down even remotely close to that is extremely slim, and the odds and return are BOTH to the upside.

We may have had "aversion" but I don't think so. The 2011 debt ceiling/credit downgrade certainly took us to "aversion" or even "panic" type of levels, but only on shorter time frames. I think there still could be one more good move downwards as the budget battle commences, but perhaps we are just in the early phases of "denial" and the correction never even amounts to a 10% correction.

I think 10% would be healthy, but we don't necessarily need it to set the stage for a tremendous run higher. Use the opportunity to  identify stocks on sale. If you are an option buyer, you may want to take a small amount of your portfolio and look to bet on a MAJOR move with far OTM options expiring in 2015 (and possibly rolling them into 2016 when you get the opportunity). If you aren't, you may stil lconsider leveraged ETFs such as TNA or UDOW. I also like aiming for those near the top of the cycle such as Basic Materials (MATL,UYM) and Energy (ERX,DIG) and concentrating a bit more in those areas.

This is the opportunity you must take advantage of while you can.