Stock Market Bounce Imminent
as Bullish Sentiment Collapses
Wednesday, June 15th, 2011
By Michael Lombardi, MBA for Profit Confidential
As funny as it sounds, in the business of forecasting the direction of stock prices, it has been proven that the market moves in the opposite direction of what stock advisors expect of it.
A classic example of this: in October 2007, when stocks were at an all-time record high, the percentage of stock advisors bullish vs. those bearish was at a record high. Of course, the stock market fell 55% from October 2007 to March 2009.
In March 2009, when stocks were at multi-year lows, the percentage of stock advisors bearish vs. those bullish was near a record high. Of course, the stock market took off on March 9, 2009, and has never looked back.
When stock advisors are either at extreme bullish or bearish sentiment positions, the stock market moves in the opposite direction of what the stock advisors are predicting. Almost never fails.
This brings me to today…
I follow various analytical services that gauge the sentiment of stock advisors. With the recent pull-back in stock prices, the number of stock advisors turning bearish has swelled.
In fact, the percentage of bullish stock advisors in the marketplace has fallen to a low not seen since September 2010 (Source: Investors Intelligence). The Dow Jones Industrial Average rose 22.6% from the beginning of September 2010 to May 2, 2011.
Yes, corporate earnings, monetary policy and the economic picture drive the long-term direction of the stock market. And, while I’m bearish on long-term prospects for America, we must acknowledge that corporate earnings are still strong and monetary policy is favorable. Only the weak economic situation is slowly being discounted by the market.
After a sharp decline of 926 points by the Dow Jones Industrial Average from May 2, 2011, to June 13, 2011, and given the sharp rise in stock advisor bearishness, I believe that the odds strongly favor a stock market rally here from severely oversold market conditions. We got a taste of that rally yesterday for the first time in weeks, as the Dow Jones snapped 123 points to the upside.
What He Said:
“As a reader, you’re aware I’m not a Greenspan fan. In the years that lie ahead, I believe we (and our children) may pay dearly for the debt bubble Greenspan created during his tenure as head of the U.S. Federal Reserve.” Michael Lombardi in PROFIT CONFIDENTIAL, March 20, 2006. “A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way out of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on over-extended consumers.” Michael Lombardi in PROFIT CONFIDENTIAL, March 26, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.
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Tags: bearish, bullish, dow jones, stock advisors, stock analysis, stock market bounce, stock market opinion, stock prices
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
