Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Stocks Bull Market Continue to Charge or is it Time to Sell the News

Stock-Markets / Stock Markets 2016 Jan 13, 2017 - 05:01 PM GMT

By: Sol_Palha

Stock-Markets

For of all sad words of tongue or pen, the saddest are these: "It might have been!" ~ John Greenleaf Whittier

For a long time, our theme was to view all sharp pullbacks through a bullish lens as the trend based on our trend indicator was trading firmly in bullish territory. Secondly, one critical psychological component was in our favour too - the masses were either bearish or they cursed this market from the sidelines (neutral camp); hence the slogan the most hated bull market in history.    We must deter for a second by stating that a mild or brutal correction comes down to what level you embraced this market. If you embraced this Stock Market Bull in the early stages from 2009-2011, then a mild correction would seem brutal or back breaking in comparison to someone who just jumped into the market. A 15-20% correction would knock the socks out of them, but for you, it would appear to be nothing but a blip; this is why we have consistently stated that the best time to open long positions when the masses are in a state of despair.


Having said that what does the future hold?

Towards the end of last year around Dec, we stated that we were getting a tad bit nervous as the crowd had started to embrace this bull market. Up until the Trump win, which we saw as a bullish event for the markets, while most experts viewed it as a death omen, the masses were either bearish or sitting on the sidelines. Bullish sentiment was generally below 40%, and the combined score of the individuals in the bearish and neutral camp was almost always above 55% and in most cases above 65%. After Trump had won the markets experienced an initial shock but recouped twice as fast as they did with Brexit and never looked back since. During this monstrous rally, the sentiment gradually started to improve, and for the past 11 weeks, the percentage of individuals in the bullish camp has always been above the 40% mark. On three occasions in the past 11 weeks, the bullish sentiment soared above the 50% mark something we had not experienced even once over the past 30 months. As we pay close attention to the masses, this had to be treated as a significant development.

Anxiety Index

The anxiety index for the past 24 months has oscillated between the severe and hysteria zones. At the moment the gauge is sitting in the mild zone. When we combine this with the fact that more individuals are embracing this market, it suggests that being cautious might for the 1st time in many months be the most prudent form of action. Additionally, the markets are extremely overbought and are begging for any excuse to let out some steam.

Dow Industrials Weekly Chart

The Dow has experienced a new vertical takeoff after the results of the election results were announced; -fast, furious breaks outs are usually followed with substantial pullbacks. As can be seen in the above charts the technical indicators are trading in the extremely overbought ranges and given the massive change in sentiment over the past two months caution is warranted. The risk to reward ratio is not in favour of the average investor anymore. The market needs to let out some steam; a 10% pullback would be quite nice and would pull it back to the point of the current break out - former resistance turned into support.  This would be enough to scare the living daylights out of the masses. In this case, we would favour an even stronger correction, perhaps a test of the 200-day moving average which would put the fear of God in almost 90% of investors and thus creating a splendid buying opportunity for the astute investor. Our goal is not to focus on ideal targets but the mass sentiment, and that is why we have developed a host of tools to monitor the masses one of which we have posted above. If the Dow drops down to 18,000 ranges, but the masses are not fearful, then we would not view the situation as a buying opportunity.

A weekly close below 19,600 will signal that of the 18,200-18,600 ranges is likely. If the markets close below 18,200 on a weekly basis, it is possible they could trend much lower, but we do not want to look that far into the future and will address that hurdle when and if the Dow touches that zone.

Buy the rumour and sell the news factor

The masses panicked when they found out that Trump had won. The fake news media sites started huffing and puffing about the dire consequences the markets would face if Trump won. Several weeks earlier we went on a limb and in an article titled "Mass Psychology states Trump win Equals stock market buying opportunity" we made the following comments.

A Trump win will create uncertainty, and the lemmings will flee for the exits; markets will pull back sharply and viola the same old cycle will come into play. The cycle of selling based on fear which equates to opportunity for those who refuse to allow their emotions to do the talking. ~ Full Story

We repeatedly advised our subscribers to view a Trump win through a positive lens. However, now we feel that the markets have priced in the all the positive factors associated with a Trump win (at least in the short term time frames) and some bloodletting is in order. In other words, it might be time to put the principle of "buy the rumour and sell the news" into use.

Conclusion

When you think about it, everything comes down to perception. Alter the angle of the observation slightly, and you modify the perception. What appears bullish to one could be viewed as an extremely bearish development by another. When it comes to investing the goal should be to determine what view the masses hold whether it is valid or not is irrelevant for the difference between a truth and deception comes down to perception also. If the masses are leaning strongly towards a particular outlook, history indicates that taking a contrary position usually pays off.

The masses have for the first time embraced this bull market. From a mass psychology perspective, this is alone is not a huge negative. Mass Psychology dictates that the masses need to turn euphoric before one abandons the ship. It is not the time to abandon ship, but it is time to take a breather and let the storm clouds pass.

The Dow industrials exploded upwards and have experienced a near vertical move over the past two months. Under such conditions, one should not be shocked if the markets let out a stronger dose of steam than they have over the past 24 months.

"One man's remorse is another man's reminiscence." ~ Ogden Nash

by Sol Palha

www.tacticalinvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

© 2016 Copyright Sol Palha- 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