What Kind of Rally Will We Get?

Why is it that no one wonders what level should I sell at when the rally comes -- if it comes? Why is it that everyone is more concentrated about "What level can I buy at?"

Think about that in terms of sentiment. Shouldn't folks be so bearish that they view a rally as an opportunity to bail them out of bad positions rather than an opportunity to buy stocks?

You would think after the horrid Thanksgiving rally we had that traders might have learned that rallies are better selling opportunities than buying opportunities. But clearly that was not the case, since as soon as the Christmas rally arrived, it was the same story: "What shall I buy?"

Then the low in January, which was capitulatory, offered a rally so fast and so sharp that you had to get on board immediately or you were left behind, but it too turned out to be another chance to sell. And yet here we are again, with the strong possibility of a rally this week, and still it's all about buying, not all about "What shall I sell?"

Sentiment is bearish, based on the majority of indicators I discussed in full last Friday. And we'll be maximum oversold midweek.

However, I noticed something regarding Market Vane's bullish percentage. Just over a year ago, in April of last year, I noted that the previous time we had seen the bullish percentage at Market Vane's weekly survey at 74% was February 1998. I then went on to compare our market to 1998. I even speculated that an Long Term Capital Management type of financial crisis lay ahead of us (little did I know 2007-08's financial crisis would make LTCM look like child's play.)

So I went back and looked at what transpired in the Market Vane figures for 1998. Will it shock you to know that in 1998 we bottomed out in bullishness at 23% and in today's market, we're hovering at 42% with the lowest reading at the January low at 40%?

Now, maybe we don't have to get all the way down to 23%, but don't you find it curious that the LTCM crisis was actually over in a matter of two or three months (August until early October) and it did not ripple through the world banking system the way this one has, and yet people got more bearish faster back then?

I'd say this time it's lasted longer and kept the hope alive a lot longer.

In the meantime, the finger pointing at the banks continues. While everyone is waiting for capitulation, I'd note the Bank Index was green on Friday. In fact, the ratio of the BKX to the S&P turned upward on Friday and did so from a higher low. Yet everyone still hates those banks!

And did you see the volume in the commodity names? Heck, you don't even have to look at the large points lost in the ag names to see it, you can simply look at the volume in the Materials SPDR XLB, the ETF for basic materials. Not quite a record, but awfully close.

Keep in mind we had a fairly similar occurrence in the horsemen (see Google's GOOG chart below) in the November decline. When there is panic, folks sell their winners. It is how tops begin to be built in former winners.

Speaking of the Horsies, I heard them referred to as "dog meat" on Friday. I must say I was quite shocked at that. As you know, I started harping away at how I believed the Horsies would become a thing of the past late last year and I reiterated it in January. That was the time to be negative on these names. But hey, many of them were up on the day on Friday and someone called them "dog meat"? Wow. I hate to think what they would say about that 7% dive in Monsanto MON. If the Horsies were "dog meat" on Friday, then would they say Monsanto was good?

About the only positive thing I can say about Monsanto here is that it really ought to hold that uptrend line the first time down; I don't expect it to break. But you now have a lower high and a stock showing more volume on down days than up days. Oh, but then, you know me -- I'll probably have something nice to say about Monsanto when everyone starts hating it!

So as I said on Friday, it is possible that whatever rally we get will look more like November's rally than August's. Keep in mind that November's rally never saw panic or capitulation in the market as a whole, it saw it in individual stocks. And that is why the rally stalled so quickly -- there never was a wholesale cleanout. So far, we're seeing the same type of action this time around.

I'd welcome capitulation; I'm just not sure we're going to get it.

This article was written by Helene Meisler, whose newsletter "TheStreet.com Top Stocks" gives readers daily investing ideas based on a study of technical analysis.