This is almost as much fun as having a root canal. Oh wait, I am having a root canal later today. Ugh.

In case you felt a bit dizzy, the first three days of the week were down about 200, up about 200 and down about 200 (not a ton by the way on a 16,000 point base. Yesterday broke the rhythm with the DOW finishing up a bit and the NAS doing well – but that was primarily due to the pop in Facebook.

In essence, the markets appear to be making an effort to settle down a bit – near the lows of last August’s selling panic. Who can forget, after all, that lovely Monday where the DOW was down about 1100 points for a span of about 6 minutes and then rallied 600 points back.

Listen, if we even remotely think those short-term movements are the work of individual investors – take heart – they are not. That is classic HFT. Indeed, I would suggest that the algorithm boys have been the ones primarily moving the market all week long. But I am remiss in not reminding us that this is short-term garbage masking the long-term values being created?

It’s All Emotion

Look, I know I sound like a broken record sometimes and I really don’t intend too but there are points that require reminders.

Sentiment is one of those things because we are all wired pretty much alike.

Reminders are needed because right when we need to be aware of the crowd – we usually feel just like the crowd, masking the value issue at hand for the long-term investor.

You know this is starting to feel like to me?

A good deal like 1994-1995. There was just a general haze at the time and while things were fine – the oomph was not there. Sure we were growing a little but not a lot – and the haze was pretty widespread.

The crowd was antsy – nowhere near as bad as it is now – but antsy nonetheless.

Then, oddly enough, though we had spent two years worrying about falling into recession – we didn’t – and the market went straight up for the next 5 years – after a tough 2 years.

My point is this…

No matter the sentiment chart we look at today, the mass is in a funk.

They don’t like stocks at 14 times earnings – they love bonds at 50+ times earnings and they have voted 8 trillion times for cash in the bank earning no earnings at all!

I highlight all of this again because we all have that pit in our gut. That ever so common feeling near value points when we start thinking, “gosh – you know maybe there is something to all these bad headlines…”

Think of that posture when you review the charts below – all about sentiment readings – which likely only edged lower this week.

Why think? Because if this is the end of the world, it will be the first time in history where the (very often) wrong-betting crowd will have figured it out first.

Now to the ugly sentiment readings thanks to some nice charts from Dr. Ed:

Now, for review – the first chart shows us the bull/bear ratio of Investors Intelligence. By the way – newsletter writers have their highest cash reading on record – meaning they are telling all their readers to be bearish as well.

Back to the ratio – note in chart one we have entered the region of the chart which has only been visited a few times in history. While none of those times were pretty – they each represented long-term value if one could stomach the short-term mess.

We surely have a short-term mess on our hands – just like all those other times the masses felt this badly.

The second chart shows an overlay of the SP 500 average on top of the Investors Intelligence ratio readings (first chart) under 1.0 – which we have had now for three weeks running.

Again, a long-term view suggests those were periods of value – even as the world at the time seemed – well – not so worthy of that view.

The last three charts are a combo set showing the AAII sentiment readings from a few perspectives – together/separate and blended. No matter how you slice it – bears are reaching levels rarely seen – and bulls are at depths equally rarely seen.

The bottom line on the AAII? Between bears and correction fear guys – 8 out of 10 investors don’t like the market.

I assure you, ends of bull markets do not look like this….but like I said earlier – that does not make it any easier on the bottle of TUMS…or bourbon for that matter. OK, I am kidding.

In Closing

It is the weekend. Unfortunately, I have to have a root canal on a tooth that I broke 20 years ago while eating a crab salad at Joe’s Crab house in Miami.

Ouch. That is at 1:00 today so I won’t be speaking for a few hours after that….and I know dozens of people who are looking forward to that : )

Me? I will spend the weekend sifting through the garbage left behind after a doozy of a start to the year. As the old joke goes, “There has to be a pony in there somewhere.”

Recall for the weekend relaxation that we have had a few of these types of starts over the decades – all but two ended green for the year, several very green indeed.

It is all about sentiment when this much back and forth is going on. I would have used another word there but “back and forth” seemed so much more technical.

Under all the noise, the country is growing – major tectonic shifts are underway.

Like it or not, our best days are ahead – use the punk sentiment windows to your advantage and then hold your nose for awhile : )