The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK ( TheStreet) -- At The FRED Report, we have been concerned with a possible correction into the May/June timeframe, and there are certain indicators that are forecasting this potential. We will list and discuss some of these indicators.
The first indicator is investor sentiment. We follow Investor's Intelligence numbers, but only the Bears, and % Bears has been consistently below 20% for the last four weeks. While Sentiment is not a timing tool, it does tell us conditions in which too many people are bullish, and a surprise event that shakes investor confidence could occur at any time sparking a sharp selloff. These numbers are published with a lag so the chart below does not appear to be up to date.
We have been seeing some interesting sector rotation that is often indicative of changes in the market. Since January, leadership has changed to Consumer Staples from Technology. This is normally a defensive sector, and this sort of shift often forecasts a correction. Coupled with the recent decline in commodities, and strength in the dollar, there are two interesting things this could mean. First, this could mean that foreign money is coming into our market. While this has got some positive implications for the longer term, this could cause a sharp drop in our stock market if there is a short-term euro crisis, as it did last year, and has at other times.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV