Where the market goes, sentiment goes

As usual, the higher the market goes, the more analysts and forecasters revise their linear extrapolations to the stratosphere.

Unfortunately, that's the recipe for disaster, as not only everyone is bullish, but forecasts are now becoming completely mad.

Obviously, when it comes to the Nasdaq, Apple's weighting being so huge, one can understand why the index is out-performing. But it doesn't mean that Apple shares cannot decline: in 2007 they dropped more than 50%, only because everybody needed to raise cash and nobody was short the stock to buy from those sellers. How many people are short Apple today? Certainly not me, since I've been long the stock since 2001.

Here two prime examples:

Feb. 8 (Bloomberg) -- The Nasdaq Composite Index has entered a bull market and stocks may continue to rally through the end of March, according to Louise Yamada, who said in December that equity charts were signaling further losses. 
The Nasdaq has initiated a new structural bull market,” Yamada, managing director of Louise Yamada Technical Research Advisors LLC in New York, said in a radio interview today on “Bloomberg on the Economy” with Sara Eisen. [...] 
The Nasdaq Composite reached 2,918.26 today, its strongest intraday level since December 2000.  
“One thing that’s extremely intriguing to us is that the Nasdaq has not only gone through the 2011 peak but has also now exceeded the 2007 peak for the second time,” Yamada said. “The bigger the drop, the longer the need for repair. Well, we have that incredible 2000 drop and now you’ve had eight years of repair.”
 Feb. 8 (Bloomberg) -- Investors should have 100 percent of investments in equities because of valuations and higher returns than bonds, said Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK), the world’s largest money manager.
Please note that for a "real money" fund manager, who cannot short, nor borrow money to use leverage, this as extreme as it can be. It means to get ALL IN, with no cushion at all. The minute shares decline, and redemptions come in, they will have to sell. That's the vicious circle of selling to raise cash to pay back investors and contribute to make the market decline further and then sell to raise cash again...  
[...] “I don’t have a view that the world is going to fall apart, so you need to take on more risk,” he said in an interview with Bloomberg Television in Hong Kong today. “You need to overcome all this noise. When you look at dividend returns on equities versus bond yields, to me it’s a pretty easy decision to be heavily in equities.”
Fink’s recommendation is at odds with investment-management guidelines that urge investors to diversify their holdings by putting 60 percent of their money in stocks and 40 percent in bonds.
No investment manager will ever recommend you to be out of stocks. Simply because that's how they make money: they need you to trade. So don't listen to this nonsense!
 “I’m very bullish on the market,” he said, citing the increased liquidity from the U.S. and European central banks. “I think the market is focusing too much on noise like Greece. And yet we’re going to have a lot of volatility and we’re going to have to live with it.”
 To conclude, I will quote Hussman:
As of last week, the Market Climate for stocks remained characterized by rich valuations [...] an exhaustion syndrome that has typically been followed by market declines averaging about 25% within the following 6 months.
Thanks to my friend SS for sending me the report about Fink and Hussman 

1 comment:

Anonymous said...

Everything old is new again. The markets can only go up forever! Everyone has forgot Dow 6,700 just three short years ago.

It seems like 13,000 could be a key psychological point, and there's very clearly a massive right shoulder forming on a Dow 1998-Present chart.

Anyone who's brave enough to go all-in short could emerge out the other side quite rich.