Opportunities Abound in Dow Stocks, Not Emerging Markets

By David Moenning: Good morning. Although there was a lot of carnage to be found in the stock market on Thursday if you owned anything remotely related to Apple (AAPL), and the bears did do their darndest to create a reversal day after the S&P kissed the 1500 level in the early going, the DJIA actually finished with a decent gain yesterday (46 points or +0.66%).

If you want to gain an edge on everyone else you need to look in places that no one else looks...to approach the markets in a very different manner than everyone else. One "market" that we pay particular attention to, which no else does, is emerging market small caps. The trends in emerging market small caps are definitely a lot easier to depict than they are in major market indices such as the Dow, FTSE or the Nikkei.

Is the U.S. back? That’s the big question in the global economy right now. Earlier this week, Federal Reserve chairman Ben Bernanke suggested that he’d be tiptoeing away from the Fed’s asset buying program, perhaps as early as the fall, since the U.S. economy was showing signs of recovery. That news, along with weaker than expected Chinese growth data, helped send Japan’s Nikkei stock market index crashing. Ironically, the weakness of the U.S.

By AAII: Equal numbers of individual investors described themselves as bullish or bearish about the short-term outlook for stocks in the latest AAII Sentiment Survey.Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.7 percentage points to 33.1%. This puts optimism at a five-week low. The historical average is 39%.

AAII submits: Bullish sentiment rebounded in the latest AAII Sentiment Survey. Optimism that stock prices will rise over the next six months rose 4.6 percentage points to 29.0%. Despite the improvement, this is the ninth consecutive week that bullish sentiment is below its historical average of 39%. Neutral Sentiment, expectations that stock prices will remain essentially unchanged over the next six months, edged up 0.3 percentage points to 28.3%. The historical average is 31%.

AAII submits: Bullish sentiment improved 4.1 percentage points to 41.8% in the latest AAII Sentiment Survey. This is the first time optimism that stock prices will rise over the next six months has been above its historical average of 39% since February 17, 2011. Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, was down a very modest 0.2 percentage points at 27.1%. The historical average is 31%.

There is much banter/blogging about suggesting that bullish sentiment is very high with respect to the equity market. These sentiment readings come from various surveys such as the AAII, Market Vane etc. Now we find ourselves in a situation where a number of commentators are suggesting that the equity market is about to collapse or at least have a significant correction because there is too much bullish sentiment. I don't agree because I am highly skeptical of how useful these indicators are at least from a medium to long term perspective.

Matthew Bradbard submits: My take is the dollar is due for a bounce and indices are ready for a reversal lower while most commodities could trade down in the immediate future. The 20 day MA at $82.20 continues to act as the pivot point in December Crude. Though we may see a probe at $84 we continue to think a trade down to $77/78 is in the cards. Clients are positioned accordingly and if we’re right we will look to reverse and get clients long near those levels.