Commentary: Paul Ebeling on Wall Street


FLASH: More than anything else, the longest Bull market in history has relied on low interest rates, and weakness in jobs. So, if everyone else is worried about stocks, capitalize on the fear and make a a lot of money as the market climes the wall of worry, fear is your friend,

Fear is always your friend in the stock market when the market seems low, and when it is up, like now, and look way too high for way so many people.

Fund managers of all types are at their most pessimistic since the Y’s 2007-2008 financial crisis, a recent survey showed.

Such fear is ironic as stocks just hit all-time highs last week. That means the Bank of America’s fund manager survey is just another sign of today’s market fear.

And the American Association of Individual Investors’ (AAII) weekly survey showed less than 30% of retail investors think stocks will rise over the next 6 months.

At the same time, investor sentiment and economic confidence gauges across Europe are tanking.

Headlines echo such fears, causing people to withdraw money from stock mutual funds and ETFs in 4 of the prior 6 weeks through mid-June.

You play in this game long enough and you learn that negative sentiment is Bullish.

The Big Q: Why?

The Big A: Because, markets pre-price widely known information; fears, opinions, forecasts and more. When you see headlines warning of tariffs, BREXIT, Iran, or Europe’s allegedly imploding economy, understand that stocks already priced that stuff in. 

Anything less bad is a positive surprise, hence Bullish.

Consider this Bull market’s 9 March 2009 birth. People feared a new Great Depression. The recession that came was big, bad, but not that big and bad. Stocks rose while the economy fell. US stocks rose 72.3% in the Bull’s 1st 12 months.

Now, consider today’s big fears like Iran’s threats to close the Strait of Hormuz and its choked Crude Oil supply. Investors’ dread is priced in now. Anything less brings relief, less is likely, because of ample global supply and the fact that Iran cannot really block the Strait. Tankers have been attacked in years past, which was not good, but it was not an economic crisis. The world is awash with Crude Oil.

Europe’s economic fears you ask, a slow-growing economy with weak manufacturing beats recession, and that is Bullish. Same with BREXIT.

Bull markets end 1 of 2 ways;

  1. Atop the legendary “wall of worry” as euphoria makes positive surprise essentially unattainable, or
  2. a multi-trillion dollar negative shock. The 2007-09 financial crisis was a wallop. But every other post-WWII bull market ended in euphoria. That matches Sir John Templeton’s legendary framework: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Absent such a wallop, Bull markets end when investors tire of worrying.

Stocks still have a big wall of worry to climb. At a true euphoric peak, sentiment surveys boast optimism. Money pours into stock mutual funds and ETFs. Headlines cite as many opportunities as risks. The investment pundits will ridicule the Bears, not the Bulls.

Participants will fear missing gains more than fear suffering losses. When the writers write that bad times loom, people will call them crazy.

Sentiment is not a timing tool, euphoria is a dimmer switch not an on-off switch.

In order to see euphoria when it comes, you have to think differently than others do. Instead of letting widespread fears send you scampering, envision what they say about sentiment broadly. When you see people excited to own stocks and dismissing risks, then start thinking about going to cash.

“Today, they do the opposite, their fear is your future fortune”– Ken Fisher declared Saturday.

HeffX-LTN’s overall technical out look for the major US stock market indexes is Bullish to Very Bullish, with our Key indicators Very Bullish as of Friday, 5 July 2019.

Remember, it is your money so, your responsibility, pay attention.

The Bulls Vs The Bears

There is an old Wall Street adage: The market takes the stairs up and the elevator down. That’s just a colorful way of saying that the market tends to drop faster than it rises.

In this case the Bulls are on the escalator and the Bears are walking down the stairs.

Sentiment: The sentiment is pessimistic, which is rare considering that stocks are near all-time highs. A lot of investors are concerned about the trade dispute and pockets of economic weakness.

According to AAII sentiment data, there have been more Bears than Bulls for the 8th week running. Such streaks are Bullish for the S&P 3 months later. The only 2 Bearish cases occurred in July and October 2008, when the economy was deep in a recession and the stock market had already collapsed. That is a very different environment from today.

The Bulls Vs The Bears 

Support and Resistance

Analysis for DIA: Very Bullish across the board
Support and Resistance

Again, the US leading economic indicators are good in here, which suggests that a recession is not in sight.

HeffX-LTN’s overall technical outlook for Wall Street’s major US stock market from the support and resistance perspective is Bullish to Very Bullish in here, as all of our Key indicators are now Very Bullish

Have a terrific week