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We’re currently in a battle of bullish vs bearish sentiment. After the markets recently hit new lows and cemented a bear market, the crowd suddenly became anxious to deploy capital. After all, a 22% drop in the SPX 500 index should be enough to find some names in the bargain bin, right?

Just because you are feeling bullish – or want to believe bullish sentiment will prevail – doesn’t mean it’s going to happen. Hope is not a trading strategy. Yet we see traders and investors who are desperate to find a reason to go long this market. It appears they are fighting a trend.
 

Bullish vs bearish sentiment – who’s right?

The AAII data points towards a sixth straight week of heavy bearish feeling. Meanwhile, indicators are mixed. Some indicators are signaling a turn higher, but unless/until price action confirms the indicator readings, you can’t jump ahead. (Traders are trying to jump ahead anyway. I’m seeing plenty of traders place a directional bet and then get slaughtered.)

We have yet to see much followthrough in the markets following a strong market day. In fact, going back to early April, any big rally day has been sold viciously the following day, losing most or all of the gains. Trading in an environment like this is akin to trying to catch a falling knife. Good luck.

So, what is the right strategy? As difficult as it sounds, wait patiently for a bullish trend to become established. You want to see strong follow-through on price action and higher lows and higher highs on the charts.

This is a bear market, there is no disputing that fact. It will be over someday. Most of us will miss that turn higher, and that’s okay. However, if you can make some adjustments to your strategy – if you can be patient and wait for the right moment to strike – your portfolio will thank you. Don’t let the crowd’s battle over bullish vs bearish sentiment steer you wrong.