Little has changed since our last commentary. The indices we follow are just slightly higher and after a strong move higher on Thursday, the market gave back all of its gains (plus some) by today's close. We mentioned in last week's commentary how Bollinger Band Width has been high and it was quite possible for the market to build a base before moving higher in the coming weeks. We still believe that the low from Wednesday, May 24th is the bottom of the current correction and that the indices are in the midst of building a base.

One of our strongest reasons for believing that this is only a small correction in a bull market is the current sentiment. Investors and traders are currently very bearish. This can be seen through the total put/call ratio, the AAII survey, public short sales, and the number of stock market newsletters short. Market commentators have even mentioned the possibility of a fall comparable to the '87 crash and many investors and traders believe that the bull market has ended. Bull markets don't end when the market begins to fall. Bull markets end when sentiment is extremely bullish and price and volume action has been strong. To believe that the bull market is over, you would have to believe that the top came in April of 2006. Our work shows that this is highly unlikely.

Tonight we are putting up the same three charts as last week. You can see how the Bollinger Band Width indicator has begun to rollover in all three of the indices we follow. The last two charts are to show how bearish the sentiment is currently. The first of these charts is of public short sales. Public short sales hit a new record high last week! The second of the sentiment charts shows the percentage of bulls and bears from the AAII survey. The AAII survey is a survey of public opinion and you can see from this chart how extremely bearish the public is right now.

Take Care,

Stephen Brown
Founder of Nasdaq Wizard, LLC