THE WITCH IS DEAD BUT WHAT ABOUT THE BEAR? ADVISORY SENTIMENT, A KEY PIECE OF THE PUZZLE, FALLS INTO PLACE.

In the last update, I wrote that the markets were consolidating, while in the financials retested the Jan. 23 lows. The Mar. 10 update presented evidence to show why the retest should be successful and stated the equities could start a major rise any day. Twenty four hours after you received that updated, US equity markets produced the biggest gains in five years. While Eliot the zealot clearly exited the political scene and will not haunt corporate officials any longer, does Tuesday's action mean that the bear has gone into hibernation?

On Mar. 12, one more key piece of the investment puzzle fell into place. The sentiment of market experts has a record of reaching high levels of optimism around market peaks, and higher levels of pessimism near market bottoms. On Mar. 12, Investors Intelligence (see the chart below reprinted with their permission) reported that pessimism had now reached levels only seen at the end of serious declines in fall 1998 and after Sept. 11, 2001. As you can see, the level now is only two percent away from matching the highest level of pessimism reached anytime during the last decade, which occurred at the end of the long bear market in October 2002. This is a very positive development, which supports the case that we are witnessing a bottoming process. The three charts after the sentiment chart show what we will need to see for confirmation that the bear has also left New York. Please take a moment to observe them.

The long Trend indicator for the Volatility Index has been in an up trend since February 2007. When volatility is reduced enough for this to finally turn red, it will indicate that the corrective phase is over.

The trend charts for most all market averages have been red, like this one for the SP 500 Index. When this turns green along with most other global markets, it will also be a sign that a new up trend is underway.

The same is true for the TSX. You can see how long most of the up trends have lasted in the TSX when this indicator has turned from red to green since 2003.

This chart going back to 1999 shows that the trend indicator stayed red during powerful rallies in January and April 2001, and in July 2002 showing that they were only rallies in a bear market. This indicator needs to turn green in coming weeks if the current bear market/corrective phase is over.

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