#38903 Jan 23, 2016
Opinion: Investors are still too bullish despite the stock market correction
ByMark HulbertPublished: Jan 22, 2016 5:24 a.m. ET
The proof: They cheered Wednesday.s late-day rally even though equities tanked
CHAPELHILL, N.C. (MarketWatch) . The stock market.s plunge won.t come to anend until pessimism and despair become a lot more widespread.And that could be a while, since the stock market timer community has been exhibiting a stubborn refusal to throw in the towel.Wesaw this behavior in spades Wednesday, when the Dow Jones IndustrialAverage by the middle of the trading session had fallen by more than 500points . only to recover and close down .only. 250 points. Rather thanbemoan the loss for the session, many were quick to celebrate thatlate-day recovery, and some even declared that Wednesday was a so-calledshort-term reversal day, which would be positive from a technicalperspective. Read: Apple earnings optimism may be .detached from reality.Sucheagerness to believe any rally attempt as the real thing ischaracteristic of bear markets, according to contrarian analysis. Ascontrarians are fond of saying, bear markets like to descend a slope ofhope, just as bull markets like to climb a wall of worry. From thiscontrarian perspective, therefore, a more sustainable bottom will comewhen there is no such eagerness.
UBS.s Axel Weber expects four U.S. rate increases in 2016 (1:06)Consider the averagerecommended equity exposure among a subset of short-term Nasdaq-orientedstock market timers monitored by the Hulbert Financial Digest (asmeasured by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI).Since the Nasdaq responds especially quickly to changes in investormood, and because those timers are themselves quick to shift theirrecommended exposure levels, the HNNSI is the Hulbert Financial Digest.smost sensitive barometer of investor sentiment.The HNNSIthrough Wednesday of this week never fell below minus 37.5%. While thisis low in absolute terms, it is not in relative terms: As you can seefrom the chart at the top of this column, this was well above the minus50% level to which it fell during the market.s correction last summer.Tobe sure, on Thursday, the HNNSI did drop down to minus 50%. But, giventhe market timers. prior eagerness to jump on the bullish bandwagon,contrarians won.t entertain the notion of a tradeable bottom until theHNNSI stays at least that low for several days in a row.Anespecially bullish development, from a contrarian perspective, would befor the market timing community to remain as bearish as it is now in theface of the market.s initial rally attempt. That would suggest that,finally, the market.s plunge over the past several weeks has led to arobust wall of worry that the market can climb. Also read: What.s wrong about Cramer.s latest adviceBythe way, the HNNSI is not the only sentiment measure that leads to acontrarian-based caution about the market.s rally attempts. During themarket.s recent plunge, for example, the CBOE.s Volatility IndexVIX, -16.30%never closed higher than $27.59, in contrast to spiking to over $40 in August.
#38921 Jan 26, 2016
I usually only lurk - but I do want to add my thanks for this space that you have created, and all of the free financial advice and support you provide. ��It's like a mini-master class on the markets without having to take a final exam ;-)
But I do have a question - I moved almost everything over to G fund in early Jan bcs I was concerned about the possibility of a big drop in the S fund. ��Now I am wondering about when it might be good to get back in to S or C ? ��Can you share what signals to look for ? ��If possible I would like to catch an upswing and maximize gains with a market recovery ?
Many thanks, ��lisa
#38922 Jan 26, 2016
Iusually only lurk - but I do want to add my thanks for this space thatyou have created, and all of the free financial advice and support youprovide. ��It's like a mini-master class on the markets without having totake a final exam ;-)
ButI do have a question - I moved almost everything over to G fund inearly Jan bcs I was concerned about the possibility of a big drop in theS fund. ��Now I am wondering about when it might be good to get back into S or C ? ��Can you share what signals to look for ? ��If possible Iwould like to catch an upswing and maximize gains with a market recovery?
Many thanks, ��lisa
We're currently in a long term (1-2 year) bear market.
My recommendation is to stay in the G or F fund if that is where you are presently allocated.
If you are currently in equities, my recommendation is to sit tight. IMHO, while we have probably not yet reached bottom, markets appear overdone on the downside, shorter term.���� If I'm right, we should see a tradable bounce.
Over the longer term (beyond 2 years) equities should be fine.