I like to read Mark Hulbert’s column over at Dow Jones’s Markitupwatch from time to time because I’m interested in what the mainstream newsletters are saying at certain times and I’m interested in Hulbert’s take on it because he’s such a good fade. Back on June 19, Hulbert posted an article saying that there wasn’t enough “despair” among newsletter writers. There’s a problem with that.
Good analysts read the charts from a neutral perspective. Our job is to identify the trend and recognize the conditions where the trend is changing. “Despair” is not part of the equation. In rising markets we are long. In falling markets we are short. We don’t care about the direction, as long as we are on the right side. Any advisor who “despairs” in the present has a bullish bias. Bullish bias leads to lousy judgments. Bull markets allow those with poor judgment off the hook. They make these “advisors” look smarter than they really are. Bear markets reveal the truth about who is really good, and who has just been lucky for a very long time.
Sentiment indicator extremes change depending on the market environment. It’s never a good idea to use sentiment as a primary indicator of the market’s future direction. It’s why Hulbert seems to be wrong in his market judgments much of the time, especially at major turning points. He probably doesn’t account for shifting parameters. I’m not a subscriber, so I don’t know for sure; just surmising here, based on the occasional columns that I read. The impression that I get is that he’s wrong a lot. Just as are most of the columnists on this pro Wall Street rag.
Sentiment is a moving target as the parameters of the norms shift when moving from a bull to a bear market, as this market has been doing since the internal top last July. The downside sentiment extremes of a bull market are not extreme in the first stage of a bear market. The extremes of the first stage of the bear are not extreme in the second stage. And likewise the third stage.
I suspect that by the time this thing is over, sentiment indicators will set new records on the downside. Strictly on the basis of the price based indicators that I use in my work, this bear market has a lot further to go. I suspect that the bottom won’t be in until the media again declares the death of equities as it did in 1979 after 10 years in a secular bear market.
As far as a cyclical bottom– perhaps when Maria Fartaroma tells people to go short as she did at the bottom in 2003.
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My bull-patriot co-worker sees things entirely different, I’ll have you know. Having gone through a (very) brief period of doubt – when he discovered a subversive web-site suggesting that the Hoover administration had made a mistake, he spent a couple of weeks watching Faux News – and reading some patriotic web-sites – and has realized that everything about our current economic situation is actually going exactly as planned. You see, this is all – very simply – a plot to bankrupt China, EXACTLY the same as we bankrupted those other godless commies – them Rooskies.
So, here’s how this is going to work. The Fed is lowering interest rates to intentionally cause the dollar to go down, the Chinese lose big time – as they have so many dollars and inflation hurts them more than us (because, very important, WE are `MMRRCINS and are tougher than those Chinese, so anyway), there is social unrest in China, the Chinese government is weakened – or overthrown (depends on the day he tells the story) – and the `mercians win again. This causes the stock market to soar out of site, and the REAL winners are the people who are holding `IMMMCAN stocks long and all the doubters – meaning liberals, like on this unpatriotic site – will AGAIN be on the losing end of the argument because they aren’t true patriots – and liberals and doubters are just unable to think clearly. Now, this is all common knowledge, available everywhere the Web, but you liberals choice not to believe in `mmca, so you are blinded to the truth. (See?)
I know I’m convinced. I’ve put all my money in GM stock. I’m gonna be RICH DUDE! (I wonder how long this will take?)
Well, I hope that this debacle wasn’t planned with the aim of something so picayune as overthrowing the Chinese gov’t, but…
There will be (much more) social unrest in China, and the Chinese government will be weakened – or overthrown.
Which may or may not ultimately be a “win” for the USA.