Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Putin Hacking Hilary for Trump, Russia's Manchurian Candidate? - 31st July 16
US Dollar Set For Massive Smackdown  - 31st July 16
Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - 30th July 16
SPX Stock Market Uptrend Resumes - 30th July 16
Gold And Silver – Merkel: Example Of How Clinton Is A Globalist Puppet - 30th July 16
Some Thoughts at the Stock Market Mountain Top - 30th July 16
Gold Stocks Benchmark Battle - 30th July 16
Top 10 Pokemon GO Playing Tips, Tricks and Secrets! - 30th July 16
Asset Bubbles Tend to Crash with a Vengeance - 29th July 16
Retirees Are Risking Their Life Savings on Junk Bonds - 29th July 16
The Next Recession is Coming - Expect Around 0% Returns for the Next 7 Years - 29th July 16
SPX is Shaking and Rolling - 29th July 16
Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - 28th July 16
FOMC Interest Rates and Their Impact on the US Economy - 28th July 16
The State Of The Economy - 28th July 16
Elliott Wave Crash Course - 3 Ways the Elliott Wave Principle Enhances Your Trading - 28th July 16
Japan's "Helicopter Money" Play: Road to Hyperinflation or Cure Debt Deflation? - 27th July 16
Monetary Zika - The Insidious Nature of Credit Expansion - 27th July 16
Gold and Pork Bellies - 27th July 16
Silver Is Insurance Against The Worst Part Of This Depression - 27th July 16
Don’t Buy The SPX Hope Stock Market Rally! - 27th July 16
Bitcoin $650 Still in Play - 26th July 16
Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - 26th July 16
The Forex Markets Are Getting Exciting! - 26th July 16
Underpriced Silver Is the “Rip Van Winkle” Metal - 25th July 16
Declines in Multiple Market Indexes - 25th July 16
Retailers Are Doomed as Most Americans Are Too Poor to Shop - 25th July 16
Here’s One Currency That Could Go to Zero - 25th July 16
Stock Market Top is Expanding - 25th July 16
Silver Manipulation – Because They Needed the Eggs - 25th July 16
Silver Market COT Stuns: What's Going On Here? - 24th July 16
Gold Demand Remains Stable During Sector Weakness - 24th July 16
Sernova, Diabetes and Haemophilia - 24th July 16
Russia: Tensions, Turmoil, and Western Hubris - 24th July 16
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

So Where Is the Stock Market Correction?

Stock-Markets / Stock Market Sentiment Aug 28, 2009 - 06:45 PM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleThere’s been a significant change in the mood on Wall Street and therefore in the financial media, in recent weeks. After perpetual bullishness for months, it seems that independent analysts, and even Wall Street spokesmen, pretty much now agree the market is overbought and overdue for a correction.


The only debate seems to be that those bullish on the market say it will be only a minor five or ten percent pullback, while bears expect something worse.

At first glance, it does make me wonder to see so many expecting a correction, the only debate being its severity, given the market’s history of doing whatever it takes to fool the majority.

But then when I look around, I realize that it’s Wall Street professionals and insiders, for instance Mohamed El-Erian, CEO of bond-trading giant PIMCO, Jeremy Grantham, chairman of giant money-management firm GMO, etc., long-term very astute and successful, so-called ‘smart money’, previously bullish, who have now turned bearish. It’s Sam Stovall, chief investment strategist for Standard & Poor’s, and Art Cashin, director of NYSE floor operations for UBS.

When we look at the so-called ‘not so smart’ money, the groups that are so often wrong at market turning points that they are known as a ‘contrary’ indicator, we don’t see expectations of a correction, but the excessive bullishness and confidence usually seen at rally and market tops.

For instance, the Investors Intelligence Sentiment Index is at 51% bullish this week, its highest level since December, 2007. Its bearish percentage is just 19.8%, its lowest level since the market top in October, 2007.

At last look a couple of weeks ago, traders at Rydex had two and a half times as much money in leveraged bullish funds as in leveraged bearish funds, a higher ratio of bullishness than when the market topped out into the four straight down weeks in June.

Then there is the VIX index, also known as the Fear Index, which is based on the sentiment of options traders. It has plunged from a record level of fear and bearishness, 81 on the index, at the market’s November low, to a benign and unworried 25.

So there we are, with the smart money warning of a correction, while the usually wrong groups are at high levels of bullish sentiment usually seen at market tops.

But it’s been that way for several weeks.

So where is the correction?

And indeed, why does the smart money expect a correction?

Well, not only does the market have a history of doing whatever it must to make the majority of not so smart money wrong at the turning points, but it also has just as clear a history of correcting its excesses. And it’s difficult to claim that there are not substantial excesses currently in the market.

The most obvious and frequent observation is the overbought condition technically, with the major indexes over-extended above their 20-week moving averages to an extreme degree. Historically that has usually resulted in a correction back down to at least retest the potential support at the m.a. But more often than not it overshoots on the downside as it did on the upside, and breaks below the m.a.

A decline just to their 20-week moving averages would be a 10% correction in the S&P 500 and Nasdaq, about the worst of what bulls expect. A break below the moving average would be something more, bears calling for a retracement of half the rally off the March low, or worse.

Seasonality is also often mentioned in the ‘smart money’ warnings, references to the historically most negative three-month period of August, September and October.

Then there are concerns that in its huge rally off the March low the market has factored in better economic conditions ahead than are likely to be seen.

So, a very overbought market, extreme investor bullishness, unfavorable seasonality, a market that’s ahead of reality, selling by insiders, and warnings from ‘smart money’.

So where is the correction?

Those expecting it are shaking their heads, wondering the same thing.

PIMCO’s El-Erian refers to the market as being on a ‘sugar high’, and says we know the letdown when we come off the energy created by a sugar high, but we can’t pinpoint the hour when it will begin.

Each week it has been said the market decline will begin the next week. Art Cashin’s favorite phrase each week for the last month has been “It should all become clear by next Friday.”

A few weeks ago the newly bearish (as well as the already bearish) were pointing to August as frequently being a reversal month into September, which in turn is historically the worst month of the year. Three weeks ago, after four straight up-weeks, the market was down for the week, and that was probably the beginning. Two weeks ago, it was the old adage of sell on the beginning of Ramadan (August 22 in North America this year). Last week, it was that once the positive activity associated with last Friday’s options expirations are history, the correction would begin this week.

But it hasn’t happened.

This week it is that typical positive action around the end of the month, and the lack of participants, is holding the market up. But when September, historically the worst month of the year, arrives next week, and big investors and institutional traders get back from their summer vacations, and volume picks up, watch out.

Well, maybe. Meantime, no wonder investors remain bullish and confident. Nothing is coming of the warnings, no matter their source.

Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily market blog at www.SyHardingblog.com.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Steve Selengut
04 Oct 09, 09:39
Stock Market Correction Dead?!

Actually, hindsight and the Investment Grade Value Stock Index (IGVSI) Bargain Level Monitor tell us that it died early in March 2009. More realistically, however, corrections don't die quite so abruptly. They are supplanted by rallies--- and vice versa.

The IGVSI Bargain Stock Monitor tracks the price movements of an elite group of New York Stock Exchange equities. Their "eliteness" is earned by a B+ or higher S & P rating, a history of profitability, and the fact that they pay dividends to their shareholders.

Unfortunately, they are the same companies whose boards of directors allow senior executives to pillage treasuries with obscene salaries and bonuses--- and elite does not mean invulnerable to the whims of markets and governments.

But, for Working Capital Model (WCM) equity investments, they are just perfectly less risky (historically) than the others.

An IGVSI equity becomes a bargain stock (or "OK to add to your portfolio if it meets strict WCM diversification and price standards) when it falls at least 20% from its 52-week high. From 15% to 20% down, it is held in a mental "bull pen", getting ready for the "bigs" after a few more down-tics.

The fewer IGV stocks at bargain prices, the stronger the market, and the more profit taking WCM methodology investors should be experiencing. The most important thing most investors fail to do during rallies is to prepare for their "supplantation" by the next correction.

Fewer equity bargains and higher prices should result in growing "smart cash" levels. Smart cash results from dividends, interest, profit taking, and systematic portfolio contributions.

Why smart cash? Its not reallocated to other classes of securities, it anticipates the next turn in the market cycle, and it patiently waits for new (and pre-defined) opportunities. Uh-uh, smart cash is never market-timing cash.

Here's what the Bargain Level Monitor has been reporting:

* The 2007 monitor showed a decreasing number of bargains through May, followed by rapidly increasing numbers through year-end when nearly half the population was down 15% or more.

* The trend worsened in 2008, and at the February 2009 month-end bottom, a dartboard stock selection approach would probably have worked fairly well.

* Second Quarter numbers were the best in nearly two years--- meaning there were far fewer investment opportunities to choose from. The Third Quarter figures surpassed them by 31%.

* September was the best rally month since early in 2007, with fewer than 8% of the entire IGVSI selection universe qualifying as "bargain stocks" by month end.

Here's what the Bargain Level Monitor is telling you:

For the rest of the Article, please Google the title

Steve Selengut

sanserve (at) aol.com

http://www.valuestockindex.com

Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife