Contrarian alert…
Stock market maxim: Rallies climb a “Wall of Worry”.
Stock market irony: Bricks are added back to the wall by touting metrics that say a rally has gone too far.
Contrarians know that everyone has already invested in a rally that everyone already believes in. Healthy rallies thrive on converting non-believers into buyers. So, rallies tend to peak along with the conversion of believers.
Of course, nothing is ever 100%. Peaks come well before “everyone” is a believer. For example, the AAII weekly sentiment survey indicates 52.6% of its respondents are
bullish, it’s highest level in 3 years. Bearish sentiment at 20.6% is its highest in 2 years.
None of which prevents optimism from rising further to new historical extremes. Eventually, belief in the rally exceeds the investment arena’s normal boundaries. Statistics permeate into the anecdotal. For example, this from one of the world’s highest-profile couples.
It reminds me of another “signal” ten years ago. Supermodel Gisele Bundchen felt pretty confident after years of watching the Dollar deteriorate. So she began demanding payment in Euros.
The chart locates where the EUR/USD was trading when Gisele decided its 4-year rally would continue. The chart also depicts the next 5-year decline. Complacency among professionals is one thing. Among non-professionals, it is alarming.
Anecdotes aren’t data, and neither of them are timing mechanisms. Who knows? Perhaps Kanye’s stock purchase is a publicity stunt to induce his and Kim’s fans to buy the same stocks, as they would any concert ticket, the shares being their ticket to shareholder meetings where Kanye and Kim may also be attending.
Anecdotes and data are barometers. The market’s temperature can continue rising in the near-term. New highs during January aren’t off the table, regardless of Friday’s late tumble. Although, my patterns neutralized their last “unfinished business above” last Thursday, so the new year could start by extending the tumble.
Our day is geared toward S&P intraday trades, but we’re keeping an eye on the trend’s health. Because, after all, we want you to have a Happy New Year in 2018!
—
Rod David
913 717-8598
IF, THEN… MARKET TIMING
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