“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”, John Templeton
Everyone has a foot out the door.— Macro Charts (@MacroCharts) September 16, 2021
AAII Sentiment plunged this week – among the fastest drops in history.
Spikes in pessimism are very rare – this time all it took was a 2% pullback.
This remains a "wall of worry" in full force – Follow the trend. pic.twitter.com/R5BuNRgtI6
Sentiment towards stocks tends to be a misunderstood concept. Its structure must be studied in terms of direction and concentration. US Stocks have been described as climbing the wall of worry, but today's sentiment setup is completely different.
Stocks climb the wall of worry when sentiment has reached a point of extreme pessimism. Stocks begin to rally, and sentiment is extremely slow to respond. Sentiment turns wildly optimistic only after stocks have "climbed the wall of worry" until everyone is bullish.
Today's backdrop is completely different. Sentiment is falling from a point of extreme optimism (not pessimism). The proper description would be stocks are rolling down the hill of comfort. Stocks rolling down the hill of comfort is far less predictable than climbing the wall of worry. The former can produce rallies, protracted consolidations, or crashes, while the latter is generally associated with rallies.
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