Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
This Commodity Has Perked Up its Investors' Portfolios - 27th Sept 16
Charting the Continuing Gold Market Correction - 27th Sept 16
Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - 27th Sept 16
Financial Markets and FX Setups 27th Sept - 27th Sept 16
Crude Oil, Forex and Stock Market Trend Forecasts - 27th Sept 16
Why There is Trump - 27th Sept 16
Save Up to 70% in Shopping Expenses for Daily Items - 27th Sept 16
Gold’s Moving Averages and Long-Term Outlook - 26th Sept 16
September Stock Market - The Not So Silent Demise of Deutsche Bank - 26th Sept 16
SPX sell signal confirmed - 26th Sept 16
SPX is testing the next level of support - 26th Sept 16
Outrageously Entertaining US Presidential Campaign Final Stages - What Happens Next? - 26th Sept 16
BoJ, FOMC and Where To Now? - 26th Sept 16
Stock Market New All Time Highs Next - 26th Sept 16
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 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