Sentiment by itself is terrible as a reliable tool to judge reversals in the market.
When combined with any number of other factors, the most important being technical patterns across important market averages and assets, you can typically come within striking distance of catching tops and bottoms.
However, there are times when even the best patterns combined with all kinds of compelling contrarian evidence of a reversal punch you right in your dome, reminding all of us that markets can neither be caged or compelled to act in a way that is consistently predictable.
What works one day will fail another.
What works for a decade straight will rip your heart out in the next decade.
Over the past couple of months our short positions in the market were obviously premature in nature. These positions were taken as a result of a combination of factors, including both technical and sentiment based.
As we kick off the final month of the cage match that has been 2020, long positions across sectors have, once again, become the order of the day.
With the markets at new highs, punching through all kinds of important resistance levels over the past week, the primary reason to remain bearish will be sentiment based. That's a real problem for bears.
What most fail to realize is that mania levels of sentiment, whether bullish or bearish, have a tendency to act as a self-reinforcing mechanism in the direction of the mania. The trigger for what ends up becoming a parabolic run is a combination of mania levels of sentiment AND a market that breaks through all relevant resistance levels.
While there are some minor resistance levels remaining in the market, the moves of the past week over resistance now create a scenario where all upside possibilities must be entertained.
We're long small-cap finance, large-cap tech, with a smattering of names in between.
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