Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Sentiment Major Change Underway

Stock-Markets / Stock Market Sentiment Jan 25, 2010 - 08:29 AM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis ArticleLet’s talk about sentiment.

Last week was the worst market week since March 2009. Similarly, the three-day decline from Wednesday through Friday was the worst three days since March 2009. The market is now officially in the red for 2010. And the persons we’ve identified as market props (Bernanke, Geithner, etc) are now beginning to come under intense fire for their actions.


In a word, the market has changed. I truly believe we are at the beginning of a seismic shift in the markets. I do not use the word “seismic” loosely. And everywhere we look, there are signs of a Market Top being formed. Just a few include:

  • Rapidly dwindling volume
  • Markets selling off on good news (Intel, etc)
  • A key reversal week (the market breaks to a new high but closes at a loss)
  • Massive insider selling
  • And finally, rampant bullishness

Regarding that last point, in late 2007/ Early 2008: Barron’s interviewed 12 Wall Street strategists. ALL of them thought stocks would rise in 2008. The average forecast was a 10% gain.

The S&P 500 then promptly lost 37%.

Well, on Monday December 21, 2009, Barron’s did its usual annual survey. This time, they asked a dozen Wall Street analysts/ strategists how the market would fare in 2010. On average, they expect the S&P 500 to post a 12% gain. However, this time around, there were various caveats and their language was more hedged by “ifs, ands or buts.” This was evident in the fact that the forecasts for the S&P 500’s close at the end of 2010 ranged from 1120 to 1350.

Similarly, financial newsletter writers are currently MORE bullish than they’ve been since October 2007 (the absolute peak in stocks). Similarly, the American Association of Individual Investors survey shows only 23% of individual investors are bears, while 49% are bulls: an HIGHLY slanted view.

With this in mind, I think the collapse of the last three days is really just the beginning of something much, MUCH larger. As I said earlier, I believe we are at the beginning of a seismic shift in the markets. In bear market terms, I believe we’re at the beginning of “the next leg down.” Bear markets typically end when stocks trade at a P/E in the single digits and dividends yield 6-7%. In nominal terms, we’re talking about the S&P 500 trading in the low 00’s, possibly even as low as 200-300.

Now, we won’t get there at all once (barring some kind of systemic failure). The first wave of this bear market took eight years or 1.5 years to hit (depending on whether you count the inflation adjusted 2000 top or the nominal 2007 top in stocks as “THE” top for the bull market started in 1982).

However, I DO think 2010 could very easily repeat 2008’s performance in terms of losses. Why? Because as sentiment changes from bullish to bearish in the coming months, we’re also destroying one of THE primary market sentiment props of the last 20 years.

That prop is: that the Fed can fix/ save the market.

A lot of commentators talk about the Greenspan Put or Bernanke Put: the idea that both Fed Chairmen would do anything they could to keep the market up, thus putting a prop under the market.

However, the reality is that the market has operated under a more general “Fed Put” for at least 30 years (if not 80 years). This “put” was the mythos/ belief that the Fed COULD save the financial system if there was in fact a Crisis.

Well, since 2008, we’ve now seen the US Federal Reserve throw everything including the kitchen sink at the financial markets. It hasn’t really fixed anything, but it HAS kept the “Fed Put” mentality in tact. Thus sentiment has been allowed to return to 2007 levels of bullishness less than one year after everyone thought the financial world was ending.

So what would happen if we suffered ANOTHER round of the Crisis? What would happen if the entire world found out that the Fed not only will not save the system but in fact COULD NOT EVEN IF IT WANTED TO. How would sentiment change as this illusion became disillusion?

These are questions EVERY investor should be asking him or herself right now. Sentiment takes a while to change, but once it changes to the bearish side of things, the effects can be VIOLENT. Case in point, the markets shaved off $500 billion in wealth in the last three days DESPITE near record bullishness.

Good Investing!

Graham Summers

http://gainspainscapital.com

PS. I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse again. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only help to protect your portfolio from the coming carnage, they’ll can also show you enormous profits.

Swing by www.gainspainscapital.com/roundtwo.html to pick up a FREE copy today!

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2010 Copyright Graham Summers - 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.

    Graham Summers Archive

© 2005-2022 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