Current Market Climate

The plunge to the  consolidation lows of the past 2 1/2 weeks  was only three days long, and was due to leaked information about the purported New York subway terror threat. (See "Homeland Securities" below.) The rest of the month after the 13th was what a cyber-friend calls a "commercial loading zone".

And indeed they did load up. George Slezak of http://www.cot1.com combines all the CFTC legal professional portfolio hedgers who use stock index futures and futures options. There are about 200 of these entities worldwide, representing the very largest portfolio managers.
Slezak adjusts the emini's, and other contracts (Dow's, SP400, Russell's, Nasdaq's, etc. to the size of a large SP500 futures contract ($250 times the index) and adds them all up each week.

The total net positions of these big boys each Tuesday from the October 4th to October 25th reporting days were: -37,945, -13,382, +23,037, +42,199 total contracts. 37,945 + 42,199 = 80,144 contracts purchased. This is equivalent to $24 billion of stock which was held long which is no longer hedged short, or, for logical completeness, $24 billion of stock held short which is now  hedged long. As a practical matter most very large stock portfolios mostly hold stocks long.

This new net long position is the most, or highest or most positive, that it has been in five years. This means that portfolio managers are quite a bit more confident than they have been in five years that stocks will go up. While you and I have been bombarded by politicians and the news media in October and scared out of our longs, as well as our wits, these big boys have been on a buying rampage.

This is the  most direct and vivid  description of what the the big boys have been  doing, but there is much other evidence that the little guys have been absent from the market or getting short.

By courtesy of and with permission from Rainsford Yang of http://www.markettells.com the following chart of the daily NASDAQ/NYSE volume, with a 20 day simple moving average, show the small boys (NASDAQ players)  volume relative to big boys volume falling to levels not seen since the dramatic lows of 2002 and 2003. And we were but 6% off the SPX top, not at a long and dramatic crash low. Also see Yang's chart of the percent of shorts at the NYSE held by the public. (Always left click on graphic images for larger pop-up versions.)

There are many more examples I could show you of the terrorized condition of the average investor compared to the confident buying of the big boys. None of these indicators is the equivalent of the next day weather forecast, of course. they are not for timing: they are for a general sense of the market climate at this time. That climate is very favorable over the near to intermediate term.