Whenever we have a very red or green day, I like to find the most persuasive piece I can arguing for the contrary position. Today, that would be something bullish.
What is rather surprising is that I found just such an upbeat contrary take in the usually skeptical Alan Abelson’s column. Abelson notes that while this has never been a rip-roaring recovery, it is slowing perceptibly. He adds, however, that “doesn’t imply a return to the dark days of the late, unlamented Great Recession.” There is a huge difference between a soft patch and a full blown double dip.
To demonstrate such, he relies on InvestTech Research‘s Jim Stack, who notes that investors are more prone to overreact to each bit of news:
“Every bull move worthy of the designation suffers the occasional pause for breath. During the great bull market of the ’90s there were 24 corrections of more than 4%, and during the big market move upward from October 2002 to October 2007, there were nine. With the hangover from the worst recession since the 1930s accompanied as it was by a cataclysmic crash in stock values, it’s scarcely surprising that equities are more prone to the jitters than their more recent predecessors, and that this spirited cyclical rally, which is a mere three years old, already has suffered 11 spasmodic episodes . . .
We might add that investors have also grown more easily spooked for the very good reason that the world is far more dicey, and its woes more encompassing, than even as recently as five years ago. And investing, like so much else in the realm of finance, has become increasingly a short-term affair. This quickening means that now, more than ever, it pays to remember that no one ever went broke taking a profit . . .What also makes us skeptical of those headlines of the horrors about to be visited on the markets are the sentiment figures for both amateur and so-called pros. On that score, in the latest tally of members of the American Association of Individual Investors, 33.8% were bearish, 31.2% bullish and 35% squirmed uneasily on the fence.
Similarly, among the advisory services polled by Investors Intelligence, the bulls came in at 44.1%, down from 48.4% and 52.7% the previous two weeks. Bears, meanwhile, edged up to 23.7% from 21.5% the preceding two weeks. These readings aren’t by any means extreme, but the trend tells a contrarian that the increasingly dubious equity strategists have got it wrong.
So what else is new?”
Its worth noting that eventually all markets roll over, but so far its been a losing game guessing where the top ultimately is. Better to let the market let you know when its rolling over for real.
The Scare Mongers
Barrons, April 21, 2012