Last month we discussed how we look for positive divergences in a declining market. As you'll see in this article, we have in fact seen some positive divergences--where a stock or index and a relevant indicator are moving in opposite directions.
Source: Helene Meisler, as of March 13, 2009. Source: Helene Meisler, as of March 13, 2009. Source: Helene Meisler, as of March 13, 2009. AAII has been collecting this data since the mid-1980s, and even the stock market crash of 1987 did not have the percentage of folks who are bearish to be that high. Neither did the bear market of 2000-02. Such extreme readings have often come prior to a turn in the market, so this is considered a contrary indicator where I would want to be on the other side of the consensus. Therefore, I believe we may have an intermediate-term rally on our hands. However, another move down in the next few weeks would not surprise me at all. I would expect such a rally to be in fits and starts and, at this point, I believe it may last until sometime in mid- to late April. Whether it has staying power beyond that is still to be determined.