Bearishness Still Sells, But The Market Does Not

Monday, October 23, 2017

business analysis

I recently read a missive by John Mauldin, wherein he makes an observation of what he is seeing from similar types of “analysis” of the stock market today:

. . . a quick search of the usual suspects on the internet reveals a metric boatload of market analysts complaining about sky-high valuations, 8.5 years of bull market momentum, passive investing, over-concentration in cash-flow producing assets and the impending doom of a correction so massive it will clean our colons as well as our bank accounts.”

For those of you who read Seeking Alpha regularly, what percentage of the articles about the general equity markets have you read that have pointed to us being in a strong bull market and continuing much higher over the last 2 years? Based upon the ranking of the market analysts on this site, it would certainly suggest that most of the articles have leaned bearish, and, yes, I am being kind with that categorization. I mean, are these articles really necessary to explain to me that there are risks inherent in the financial markets? And, here I thought making money was easy.

I recently conducted a rudimentary social experiment, and I used all of you fine people (well, at least most of you are fine people) at Seeking Alpha as my subjects. I recently wrote two articles about the stock market, with both presenting my longer-term expectation that the market is likely heading over 3000 over the next several years. But, for one article I utilized a bearish title, and for the other article I utilized a bullish title. The funny thing is that the bearish titled article received approximately 15% more views.

But, despite all the “logical reasons” that are paraded before you day after day regarding all the risks inherent in the stock market over the last several years, the market has simply continued to melt up higher and higher. And, until you see the majority of analysts claiming this bull market will continue unabated, or that we are entering a new paradigm, or telling us how strong the economy is, we will not likely see the top to this bull market any time soon.

You see, logic does not drive markets. Sentiment does. And, until we see strong euphoria evident throughout the market, there will not likely be any major bull market top stuck. Yes, we will certainly see pullbacks along the way, and, yes, we will likely see a 15-20% correction before the final multi-year rally takes us to the end of the bull market.

But, all these reasons paraded before you daily simply build the wall of worry we will continue to climb. And, when it comes to “reasons” you should be bearish, as Bill Murray chanted in Meatballs, “it just doesn’t matter.” 

So, please strongly consider how much your bearish bias has helped you over the last several years, while you look at the market price and say “it just can’t be.” Well, isn’t it time to develop the correct tools to recognize it for what it is?

Price Pattern Sentiment Indications And Upcoming Expectations

I believe that the market will likely top out within the next week or two, and then provide us with a 30+ point pullback. And, as long as the market does not break below the 2520SPX region on that pullback, I expect it to set up a rally back up towards the 2611SPX region before a much bigger pullback takes hold into 2018.

See charts illustrating the wave counts on the S&P 500.

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Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net); a live Trading Room featuring his intraday market analysis (including S&P500, metals, oil, USD & VXX); interactive member-analyst forum; and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at info@elliottwavetrader.net.