Thursday, September 16, 2021

#Sentiment Review $SPX

Sentiment Review
The old American idiom, a day late and dollar short, is a phrase easily applied to the majority's ability to time (buy or sell) US stocks. The majority, influenced more by instinctual behavioral tendency of the individual to seek acceptance of an emotionally-driven crowd than act independently in the minority, views rising and falling stocks prices as bullish and bearish. This tendency that drives them to chase when probabilities favor fading relegates the majority to being the bagholders of panics and trend changes.

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”, John Templeton

Subscriber Comments

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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