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A Sudden Decline in Market Sentiment is Bullish for Stocks

Stock-Markets / Stock Markets 2018 Apr 02, 2018 - 10:27 AM GMT

By: Troy_Bombardia

Stock-Markets

The stock market soared from 2017 to January 2018. The rally’s acceleration in January resulted in extremely optimistic sentiment from consumers.

  1. 30% of consumers polled in January by the Conference Board expected stocks to rise in the next few months.
  2. Today, only 6% of consumers polled by the Conference Board expect stocks to rise in the next few months.

This is a drastic reversal in stock market sentiment. It is a medium term bullish sign outside of a recession. The U.S. economy is nowhere near a recession today. Recessionary cases don’t apply to today.

Here are the historical cases in which the Conference Board Consumers’ Net Expectation of a Rising Stock Market fell by more than 20% in 2 months.

  1. March 30, 2018 (present case)
  2. June 29, 2012
  3. March 31, 2008
  4. February 29, 2008
  5. March 30, 2007
  6. March 31, 2003
  7. July 31, 2002
  8. September 30, 1998
  9. April 30, 1997
  10. September 28, 1990
  11. August 31, 1990

Let’s look at what the S&P 500 did next.

June 29, 2012

This occurred after the S&P’s “small correction” bottomed in early June. The S&P went up over the next 2.5 months before making another “small correction”.

March 31, 2008

This was a bear market + recession case. It doesn’t apply to today because the Medium-Long Term Model predicts neither a bear market nor a recession.

Nevertheless, the S&P still went up over the next 1.5 months after this signal came out.

February 29, 2008

This was a bear market + recession case. It doesn’t apply to today because the Medium-Long Term Model predicts neither a bear market nor a recession.

Nevertheless, the S&P still went up over the next 2.5 months after this signal came out.

March 30, 2007

This occurred after the S&P bottomed from a “small correction” in March. The S&P rallied another 3.5 months before the next “small correction”.

March 31, 2003

This occurred after the S&P’s final bottom of its 2000-2002 bear market (a triple bottom). The S&P soared over the next year.

This historically case does not apply to today because it occurred AFTER a 50%+ bear market. The S&P has not fallen 50%+ today.

July 31, 2002

This occurred after the S&P bottomed in July. The S&P chopped higher over the next 3 weeks.

This historically case does not apply to today because it occurred AFTER a 50%+ bear market. The S&P has not fallen 50%+ today.

September 30, 1998

This occurred while the S&P was making a retest of its September bottom. The S&P soared over the next half year.

April 30, 1997

The S&P soared over the next 5 months before it began a “small correction” in October 1997.

September 28, 1990 & August 31, 1990

The S&P fell 1 more month after August 31, but that was the bottom of the “significant correction”. The S&P soared over the next half year.

Conclusion

This is a short-medium term bullish sign for the stock market. The stock market might fall a little more in the short term, but the downside is limited.

The stock market will trend higher over the next few months (short-medium term), regardless of how volatility the uptrend is.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - 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.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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