The following is a reprint of the market commentary from the August edition of the Option Advisor, published on July 21. Prices and the chart are as of the close on July 21. For more information or to subscribe to the Option Advisor, click here.

While it's way too early to take any credit for prescience, I made a multi-faceted case in my June 23 commentary for a market bottom, and this has so far played out pretty well. At that time, the S&P was flat for the year, and it currently sports a gain north of 4%. And I was particularly bullish on the retailing sector through the SPDR S&P Retail ETF (XRT), and particularly bearish on the financial sector through the Financial Select Sector SPDR ETF (XLF), and they have since returned gains of 5% and 2%, respectively.

One of the principles I tried to establish last month was that of thinking in our trading in a manner different than that of the crowd, "not because this is a 'cool' way to trade, but because it is the only way to achieve trading success." So it was with great interest that I read a "Heard on the Street" article in the July 18 Wall Street Journal entitled "Overheard," which discussed the concerns being expressed by technicians about the downside risk in the market. In this piece, the issues of a bearish "head-and-shoulders" technical pattern were discussed, as well as "ominous signs of an island reversal."

One would think I, as a card-carrying member of the Market Technicians Association, would take heed when such concerns are expressed, but in addition to being a technician who is quite familiar with the standard array of technical tools, I am also forever on the lookout for so-called "non-standard indicators" that can provide me with a trading edge because they are logical and because they are used by few others. And with this in mind, I feel the emphasis in the Journal piece on technical indicators that can leave you "seasick" had great potential as a bullish contrarian indicator for the market, for four major reasons:

1. While the field of technical analysis has become much more widely known and accepted as a legitimate market discipline over the past decade or two, the fact remains that this discipline is rarely covered in the mainstream financial media - most often when there is a market tumble or widespread fears thereof. So any such coverage in the Journal would immediately capture my attention.
2. Because of the rarity of technical analysis as the centerpiece of a financial media story, and the fact that the market action this year (and this summer) has been notably unexciting, my guess is it is likely that the bearish warnings from market technicians about head-and-shoulders tops and "ominous island reversals" had to be fairly widespread and deeply held for this to have attracted the attention of a Journal reporter. And as a contrarian, I am always interested when intense beliefs about the market are held by a large number of players.
3. As much as I'd like to believe otherwise, I know for a fact that a widely held consensus belief among technicians is as likely to be wrong as a widely held belief in the general analyst community, particularly when this view can be argued to be counter to the prevailing trend of the market. For example, in July 2009, early on in the market's huge rally off the March 2009 bottom, the media was awash with stories about a head-and-shoulders top pattern that was about to play out in a retest of the March lows (or worse). A similar head-and-shoulders top media scare occurred in July 2010, along with tales of a bearish "death cross," whereby the 50-day moving average of the S&P crosses below the 200-day moving average and signals doom ahead. In August 2010, the dreaded "Hindenburg Omen" came to the fore, whereby the simultaneous presence of many new highs and new lows was signaling trouble. Meanwhile, on many occasions over the course of the 2009-2011 market rally, there were legitimate "reverse head-and-shoulders" patterns - bullish indicators - that were noted by our research staff and by other technicians, but were completely ignored by the financial media.
4. Substantial money is being traded these days based on technical analysis, either directly or on the margin. And to the extent the prevailing technical view is that which is represented in this Journal article, this has likely generated a non-trivial increase in short positions in equities and ETFs, and long positions in put options. The buildup of these bearish positions has represented a headwind for the market, and should the bearish case not unfold as expected, the unwinding of this incremental short exposure could add substantial fuel to a market rally.

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