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Bulls Rush In As Market Sentiment Hits Extremes

  • Written by Syndicated Publisher No Comments Comments
    January 9, 2011

    In the afternoon hours of December 31, 2010, one 900-pound bull headed for slaughter in the back of a stock trailer busted free while its driver waited at a red light, sending local authorities on an hour-long, miles wide chase through two Pennsylvania townships.

    Believe it or not, it was the 14th bull that same day to attempt escape in the New England area, with 13 other bulls breaking out of their stables at a nearby ranch.

    It’s a fitting metaphor for what’s happening in the world of finance. There, the raging bulls have shattered their restraints and are running wild on Wall Street, with pundits rousing the herd with these “2011: Bull Market Heaven”-like headlines:

    * “Year of the Stock” (MarketWatch)

    * “Experts Predict Strong Year For Global Stock Markets” (Associated Press)

    * “Five Wall Street Heavyweights Say It’s Time To Get Back Into Stocks” (USA Today)

    If they are right, this is a healthy appreciation for a market whose internal measures reflect a rising trend. If they are wrong, this is speculative fervor based on fleeting emotions of hope and fear.

    The good news is, the brand-new January 2011 Elliott Wave Financial Forecast presents a comprehensive four-page “Investor Psychology” segment that reveals which of the two scenarios is taking place.

    There, Elliott Wave International’s analysts present an eye-opening chart comparing the NYSE Composite index with two time-tested market sentiment measures: The AAII, which combines the percentage of bulls in the American Association of Individual Investors with the Investor’s Intelligence poll of advisors, and EWI’s own Breadth/Sentiment Composite indicator, which combines the 5-, 10- and 30-day CBOE put/call ratios and the 10-day Average of the Arms Index (TRIN).

    The bottom line: Today’s extremely bullish sentiment picture is a near carbon copy of another time in the market’s past — very recent past. Except, today’s bullish sentiment is even more radical. Case in point:

    * Then: AAII reading was around 52% bulls; Now: AAII reading is at 63.28% bulls

    * Then: Daily Sentiment Index reading neared 94%. Now: DSI is the same 94%

    * Then: Mutual fund managers’ cash holdings were 3.5%. Now: It’s a record low of 3.4%

    * Then: News outlets exclaimed “Coming Soon: Dow 15,000.” Now: Those same outlets see a clear and open course toward new bull market highs.

    The parallels go on. When was “then”? Get the answers in the January 2011 Elliott Wave Financial Forecast now via a risk-free, instant-access online subscription.

    via Bulls Rush Into Stocks As Market Sentiment Hits Extremes | Elliott Wave International.