Even though it has been difficult to sit through the recent market correction, we believe that the reward will be well worth it. Currently, the sentiment indicators we follow are either moderately bearish or extremely bearish. This leads us to believe that the coming rally will be very powerful. In addition to the public short sales hitting an all time high two weeks ago, the AAII survey from last week was 55% bears and only 26% bulls! The last time the spread between bulls and bears was this large was the week of 2/21/2003. QQQQ rallied about 60% in the coming nine months. The spread between bulls and bears in the Investor's Intelligence survey is also high right now. The spread has not been larger in this survey since 3/7/2003. Just like with the AAII survey, QQQQ rallied about 60% in the coming nine months. The total put/call ratio is also extremely high right now.

The first two charts below have a 25 day exponential moving average on the volume indicator. The first chart is of the S&P 500 ETF - SPY. We have marked with vertical lines every time there was a noticeable surge in volume. You can see how almost all of these surges in volume led to a market rally. The second chart is of QQQQ. Likewise, we placed vertical lines to show surges in volume. You can notice how most of these surges in volume led to a market rally. Look how high the volume is currently in these two ETFs!

We have had an extremely powerful sell-off, yet the NASDAQ Composite only fell a little over 12%, a typical correction in a bull market. With this rather small fall, you would not expect volume to rise so quickly and powerfully and you would not expect the sentiment to become bearish so quickly. We believe that your patience over the past two months will be very well rewarded.