When Potash Corp. of Saskatchewan (NYSE: POT) fell from its June 2008 peak of $241.62, it fell hard. The stock bottomed out at $47.54 in early December, marking an 80.3% decline from peak to nadir. The shares have recently shown signs of life, though, having gained 78.7% during the past two months.

Even more compelling, POT closed last Friday atop resistance from its 20-week moving average for the first time since August, and appears poised to do so again this week. So, with the stock rallying back from its lows, why are investors gravitating toward bearish bets?

Ohio-based regional bank Huntington Bancshares (NASDAQ: HBAN) reported today a series of drastic measures meant to reduce costs by $100 million in 2009. Huntington will cut 500 jobs, or about 4% of its workforce; freeze salaries at 2008 levels; eliminate executive and incentive awards for 2008; and discontinue the company's 401(k) match contribution.

"It is important that our customers and shareholders know that we are well-positioned to deal with this challenging environment," said Chairman, President and Chief Executive Officer Stephen Steinour in a statement. "Our liquidity position is strong."

The major market indices indicate that a short-term rally is due.

Our internal indicators, chiefly the Moving Average Convergence/Divergence (MACD) and momentum, are oversold, and the stochastic has issued a short-term buy signal.

Additionally the sentiment indicators, chiefly Investors Intelligence, the American Association of Individual Investors' (AAII) sentiment survey, which has been very bearish for three weeks, and the CBOE Volatility Index (VIX), tell us that the public is bearish and insiders are bullish.

Even though the trading targets could be as close as Dow 8,500, they could also extend to the top of the three-month trading range at Dow 9,300. This may seem like just more of the same type of sideways trading that we've become used to, but it could also mean that a major market base has formed.

Virtualization specialist VMware, Inc. (NYSE: VMW) is scheduled to report its fourth-quarter earnings next Monday, Jan. 26, after the market closes. Ahead of the announcement, analysts are expecting a profit of 26 cents per share on sales of $516 million. The company has a mixed history in the earnings spotlight; during the past four reporting periods, VMW has matched estimates once, missed once, and surprised to the upside twice.

Prior to next week's release, Wall Street is aligned almost unanimously in the bearish camp. The stock sports 16 Holds and 3 Strong Sell ratings, according to Zacks, compared to just 2 Strong Buys. These skeptical analysts have placed an average 12-month price target of $26.33 on the shares, representing a reasonable 30% premium to Tuesday's closing price.

Elsewhere, short interest represents a whopping 14.6% of VMW's float. This accumulation of bearish bets would take nearly 10 trading days to fully repurchase at the stock's average daily volume. In the event of another upside earnings surprise, the shares could rally as these shorts rush to cover their positions.

Los Angeles-based builder KB Home (NYSE: KBH) is scheduled to report its fiscal fourth-quarter earnings this Friday, Jan. 9, before the market opens. Analysts are expecting KBH to swallow a loss of $1.19 per share, which would represent a marked improvement from the homebuilder's year-ago loss of $9.99 per share.

However, if history is any indication, there's a good chance KB Home's results will fall short of the Street's predictions. The company has disappointed analysts in each of the previous five quarters by reporting wider-than-expected losses.

On the plus side, it doesn't seem that many players on Wall Street are betting on an upside surprise. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open nearly 3 times more puts than calls on KBH. The stock's 10-day ISE put/call ratio of 2.78 ranks higher than 65% of comparable readings taken in the past year, which suggests that bearish sentiment is ramping up ahead of earnings.

I ran into an interesting article in Fortune titled "Don't expect another bull market: Stock returns may never be the same -- at least for this generation of investors." The article made a bold prediction:

Barring a miracle -- or the creation of a New Math of the market variety -- there's no way we'll ever see a bull market along the lines of what so many of us grew up with.

This is very interesting from a sentiment viewpoint. A few years ago, at the height of the dot com boom, some claimed that we were creating a new economy in which the stock market could not go down. Then it crashed.

I say, don't buy into these extremes. In the long run, the market will have ups and downs, but will continue a slow long-term uptrend. We may have rough periods of adjustment -- like we are currently seeing in housing -- but that doesn't mean that the fundamentals have changed.

Articles like this can be a good contrarian sign. As writers predict the end of stock market gains, it may be a sign that we have reached the bottom.

Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Despite the big run in domestic equity prices for 2007, investors are still conservative.

In a note sent to clients yesterday, Tom McManus, chief investment strategist of Bank of America, points out that investment in open-end mutual funds increased a measly +$1.2B, slightly better than the +$1.0B figure for the prior week. Total growth in equity fund assets was just 1.9% year over year. This is hardly a sign of stock market euphoria.

While in taxable bond funds, growth was 9.9%, with total corporate bond investment jumping 12.2% and investment grade bond investment jumping 18.1%.

As the baby boomers get older, it should be expected that investors will allocate more of their assets into more conservative instruments. However, this is very conservative and a sign this bull market has a long way to go.

Stay with stocks and avoid bonds is still the investment theme until there is a serious sentiment change in favor of stocks.

Many investors agree that the fate of the U.S. economy, and ultimately the stock market, rests on the continued spending power of the consumer, who accounts for around 70% of overall growth.

If history is any guide, one sentiment measure suggests that growing numbers of Americans may tighten their grips on wallets and purses in the months ahead.

Yesterday, the National Association of Home Builders released its NAHB/Wells Fargo Housing Market Index. The results did not offer any reason for optimism. According to the industry trade association, the June HMI fell to 28, "the lowest level in its current cycle and ...the lowest point since February 1991."

However, a quick read of the relationship between builder sentiment and retail sales, which ultimately reflect how confident consumers are about the future, indicates that contractors might just have a good read on future spending patterns for a broad range of products and services.

Back in 1995, as the accompanying chart illustrates, the HMI fell to a low of 40 in March, and seven months later the Census Bureau's gauge of the year-on-year change in advance monthly sales for retail and food services bottomed at 3.2%. In 2001, the HMI also fell significantly, reaching a trough of 46 in October. A year later, the annual pace of retail sales hit a low of -1.6%.

While there is not enough data to establish a definitive causal relationship between the two, logic suggests there is some sort of link.

To begin with, buying a home is the single biggest purchase commitment that most individuals and families can make. Consequently, builders are likely to be the first to notice when people are nervous about spending. Eventually, those doubts show up elsewhere and overall spending suffers as a result.

There is also the housing multiplier effect. When people are confident enough to shell out big bucks to buy a home, they typically spend money on related items as well, including appliances, carpets, fixtures and fittings, and furniture. No doubt they have to be fairly upbeat to head down this path.

To be sure, there remains some doubt about the relationship between housing and the rest of the economy, though a recent Financial Times report, "Bernanke hints at thinking on housing," suggests that Federal Reserve Chairman Ben Bernanke is coming around to the view that the link is stronger than previously believed.

Whatever the case, it may be worth keeping close tabs on how homebuilders are feeling to figure out what consumers might be up to next.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.

Despite the U.S. stock market's continued rally, investors are becoming increasingly more pessimistic.

The AAII Index registered 33% bulls and 45% bears, less bulls and more bears as the market goes higher and higher.

Barron's was also filled with negative sentiment. Steve Leuthold, of Leuthold Group, had little positive to day about the market. In addition, Barron's back-page editorial wrote of the structure bear market and high inflation of the 1970s. Further, even this week's book reviews spread negative vibes. Bubblicious, a history of bubble mania (which sounds like an excellent read), wrote of wildly over extended markets.

Mike Santoli titled his piece "The Bull Battle Fatigue," evidence of which is hard to find since the bull market is showing little sign of ending its upward ascent.

Despite a very good market for 2007, few want to suggest that this is simply a good and healthy bull market. Every rally leads to more and more pessimism.

Wait for the classic sentiment indicates to show too much optimism before becoming negative on the market.

With the Dow and S&P approaching new highs, conventional wisdom suggests investors would be becoming increasingly bullish. But, as measured by the AAII Index, bullish sentiment has declined to 28.6% from 46.9% three weeks ago. Bearish sentiment has increased to 54.6% from 29.6% during the same time period.

AAII has proven a very solid contrarian indicator over time. With bullish sentiment so low, this most likely means this rally has some serious legs. As the rally continues, those who are under-invested will have to rush and chase performance.

Remember, mutual fund inflow has stink, stank and stunk since the bursting of the bubble in the 1990s. There is still a lot of fire power in terms of individuals holding a ton of cash on the sidelines. I'd stay invested in stocks here and now.

A 25% price decline in home prices is still required to revert back to the mean, according to Tom McManus, chief investment strategist at B of A. McManus said in a conference call yesterday that when compared to rents and household income, a considerable adjustment in home prices is still required, even after the recent price weakness.

If that drop were to occur quickly, it could be very disruptive to the overall economy, but the more likely scenario is for the adjustment between home prices and their affordability to occur over a five-year period.

What was also scary was the relationship between housing prices and investors' buying momentum. Investors sentiment appears to be super high for these stocks despite the poor performance for this group. This compares with energy where the group has performed well, but investor sentiment remains very low. A bullish sign for energy, not for housing.

McManus's point: no need to bottom fish in housing yet.

Investment sentiment towards the U.S. dollar appears to be changing. Why? Not because of the many economic and political reasons often cited such as the huge U.S. trade and budget deficits improving, plans for getting out of the Iraqi quagmire, or the prospects for political change. But more importantly, the Euro and the British pound have simply gotten too strong versus the dollar.

Today you need many more dollars to buy a pound, the same is true for the euro. While many had questioned the ability for the euro to be a sustainable and viable currency, after a dubious start, the euro has performed quite well.

The simple fact of the matter is that currency valuation is often determined more by the-trend-is-your-friend mentality than a currency's underlying fundamentals -- particularly when talking about the major currencies such as the U.S. dollar, British pound, euro or yen.

What often drives a change in currency valuation are the world's treasury secretaries working together, along with their respective central bankers, to change a currency's course. Ways to play this reversal? Barron's over the weekend listed some Rydex vehicles to invest in:

• CurrencyShares British Pound Sterling (FXB)
• CurrencyShares Euro Trust (FXB)
• CurrencyShares Japanese Yen Trust (FXY)

If you really want to be cute and play the currency reversal, you could wait for the next G-8 meeting to be held. However, this will most likely be a multi-year reversal in the dollar versus the world's other leading currencies so it might be best not to wait for this meeting but to begin shorting these Rydex vehicles now.