Will the Stock Market Bull Continue to Charge or is it time to sell the news
By Sol Palha
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, onecritical 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 seembrutal 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 hasalways 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.
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.