|
| Home | About Us | Resources | Archive | Free Reports |
The Stock Market Will Not Crash (Not This Week at Least)By Jeff ClarkTuesday, August 17, 2010 Crashes don't happen when everyone is looking for them. And if the cocktail-party chatter this past weekend is any guide, everyone expects the worst.
While it's not exactly scientific, you can get a pretty good gauge of investor sentiment by listening in on the conversations at the local pub/summer barbeque/kid's soccer game/etc. This weekend, everyone turned bearish again.
It's another tremendous shift in investor sentiment. We've gone from overwhelming bearish sentiment at the end of June – after the S&P 500 had fallen 16% in two months – to overwhelming bullishness at the end of July – following a 9% one-month rally. Now that stocks have declined 5% over the past two weeks, the bears are back.
The most recent change in sentiment probably has something to do with the financial media's constant drubbing of the "Hindenburg Omen" – which flashed a warning sign last week. The Hindenburg Omen is a "crash alert" signal that triggers when there is an extreme level of new highs and new lows on the New York Stock Exchange during the same trading day. (This is a simplification of the signal criteria, but you get the gist.) This tells you the market is confused.
There have been plenty of times when the Hindenburg Omen triggered and didn't precede a crash. But the stock market has never experienced a heavy selloff without first triggering the Hindenburg Omen.
That's why Mike, the saxophone player at the nearby jazz club, is nervous. George, my son's soccer coach, is moving his 401(k) to cash. And Joe, the golf pro at the country club, is buying put options. Every one of them referenced the Hindenburg Omen as the reason they were scared of the market – a fact that has me questioning the validity of the most recent signal. After all, technical indicators tend to lose much of their value once everybody starts following them.
Just about no one knew anything about the Hindenburg Omen when it flashed a "crash alert" signal in December 2007 – just as the stock market was rolling over into bear mode. Hardly anyone paid attention to the Omen this past April, when it triggered a signal in advance of the May flash crash.
Today, however, even my carpet-cleaning guy knows enough about the Hindenburg Omen to be scared of stocks right now. As a contrarian trader, I have to go the other way.
The stock market will not crash when everyone expects it to. So the Hindenburg Omen is likely to be a dud this time around. Or at least its affect will be delayed a few weeks – until the market can rally a bit and get everyone to shift back over into the bullish camp.
Best regards and good trading,
Jeff Clark
Further Reading:
|
Netflix hits new all-time high... stock has more than tripled in a year.
For-profit educators battered again... fears of government crackdown send Strayer, Corinthian, and others down 20%.
Gold jumps above $1,225... 6% gain in three weeks.
|
