Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Stock Market Let’s Not Get Too Optimistic!

Stock-Markets / Stock Markets 2012 Jan 28, 2012 - 02:56 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleIn investing much is said about the folly of following the crowd.

It’s voiced in age-old maxims like “The market will do whatever it must to fool the majority”, and Warren Buffett’s advice to “Be fearful when others are greedy, and greedy when others are fearful”.


It’s measureable in investor sentiment statistics, which clearly show that investors tend to be overly fearful and pessimistic at market lows, not willing to participate when the market turns up, and then overly bullish and confident at market tops, not believing a rally has ended.

The current rally has been underway since October 4th. The S&P 500 has gained 21% in the four months since, which would be an impressive gain for a full year. Is it getting a bit ahead of itself?

Investors are finally catching the fever. This week’s poll of its members by the American Association of Individual Investors shows 48.4% are bullish and only 18.9% bearish. Those aren’t extreme readings, but are clearly opposite to the sentiment in late September, just before the rally began, when it was the bearish percentage that was at 48% and the bullish percentage at only 25.3%.

The VIX Index, also known as the ‘Fear Index’, measures the sentiment of options players, another meaningful method of measuring sentiment. It was at 42.9, historically a high level of fear by this measurement, in late September at the market low. Fear has declined significantly as the rally off the October low has progressed, with the VIX Index now at just 18.6, in the zone of low levels of fear, high levels of optimism, usually seen at rally tops.

So, is it time to take profits from the rally, or even take downside positions in anticipation of a correction?

In that regard, I like another of Warren Buffett’s insights regarding not following the crowd, “You are neither right nor wrong just because the crowd disagrees with you. You are right because your data and reasoning are right.”

In other words, plan to sell when others are greedy, but investor sentiment alone cannot be used to tell you greed and optimism are so high that a top is due. Sentiment can only be used as an indication that ‘the crowd’ is becoming bullish or bearish enough that it’s time to keep a close watch on other data and indicators.

When I look at other data and indicators my work includes a considerable amount of technical analysis. That is, whether a market is potentially overbought or oversold, is near potential support or resistance levels, whether money flow into or out of the market has reversed, and so on.

So, while investor sentiment reached overly bearish levels last September, my other indicators did not trigger their buy signal until mid-October. Shortly thereafter changes also seemed to take place in the fundamental conditions, most notably increasing signs that the U.S. economic slowdown of the first half had bottomed and the recovery from the ‘Great Recession’ of 2007-2009 had resumed.

And now, with investor sentiment recovered and reaching toward being overly optimistic, is it time to consider the potential for at least a pause in the rally?

We can look at another troubling condition. The enthusiastic buying in January has the market again spiked up into a potential short-term overbought condition above 50-day moving averages, to a degree that often brings a decline back down at least to the m.a. That would be a decline of 5 or 6% - if it halted at the moving average.

Then there is the history of February often being a negative month.

My intermediate-term technical indicators remain on their October buy signal, and the market’s favorable seasonality does not usually end until April or May.

But the high level of investor bullishness, and short-term overbought technical condition, indicate it may be time to temporarily take some profits from the rally.

That does not change my overall outlook for the year. If a short-term correction does develop it will be accompanied by gloom and doom predictions of something worse. But my work tells me the rally would likely resume to new highs by the end of the market’s traditional favorable season in April or May. Only then am I expecting a more serious sell-off, sometime in the unfavorable summer months, from which profits can again be made from downside positions.

But anything can happen, and in the interest of risk management for now it’s probably at least a time for caution, on the potential for a pullback at least sufficient to cool investor sentiment off to some degree.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules