Sentiment Speaks: A New Bull Market Has Begun
Summary
- It seems many financial news outlets are touting the "new bull market."
- When many turn bullish, it is time for the wise investor to turn cautious.
- I am still looking for a bit higher before a top is struck.
- This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Learn More »
Kameleon007
In October, I was calling for a major low, and a rally to the 4300+ region. At the time, most of the market was expecting much lower, mostly based upon the worse-than-expected CPI report published that month. Yet, that news actually ignited the 20% rally off the low and caught most market participants by surprise.
If you did not learn your lesson about the economic data's effect upon the market from this instance, then it likely means you will never learn your lesson. And, those that did not learn the lesson of October 2022 taught me to be crazy at the time when I was looking for a rally to 4300 from 3500SPX, even before we bottomed.
Today, we seem to be in the exact opposite environment. While many of the former bears are now turning bullish (other than the usual perma-bears we all know), it seems the market has decidedly turned quite bullish. As you can see from the headlines we are seeing across the market, many are now embracing the "new bull market."
CNN: "It's official. We're in a bull market"
WSJ: "S&P 500 Starts a New Bull Market as Big Tech Lifts Stocks"
Yet, most have fought this rally tooth and nail, trying to glean market direction based upon such things as valuations, inflation, the Fed, banking issues, and many other places which have led them astray. As one commenter noted regarding the general views of the market:
"The logic is impeccable, but yet the market keeps rising and rising and rising...."
And, I am not even going to start on those that ridiculously claim that the "market is wrong."
Valuations based upon earnings seem to be one of the biggest factors making people disbelieve the recent rally and view that the market is getting this wrong. It's not the market that is getting it wrong... it is you. I propose that anyone that is basing their investment thesis on valuations is looking in the wrong place. I strongly urge you to review the historical empirical evidence. I have written about this in detail in a past article if you want to understand my perspective in a bit more depth:
Sentiment Speaks: How To Use Earnings To Dramatically Increase Your Stock Market Returns
And, last week, I tried to explain that the common view that we have moved into a bull market simply because we have rallied 20% off the October low is a superficial and arbitrary perspective which has no basis in history or fact:
Sentiment Speaks: '4300SPX Is Not Gonna Happen'
However, the titles of the articles we have all seen this past week are hyping this "new bull market" concept. In fact, the cover of Barron's this past week displays what seems to be the new common view of the market:
Barrons
Yet, for those that have a sense of market sentiment and market history, you would know that when Barron's comes out with such a bullish cover, it often marks a topping in the market, as it displays the general bullish sentiment of the general market.
As I have tried to convey through the years, understanding market sentiment as an indicator of market direction is more valuable than all the other factors that many focus upon. The general factors that most have focused upon over the last 9 months have had them looking in the wrong direction. And, I have tried to explain it in as simple terms as possible.
You see, when the market reaches a bearish extreme, there is no one else left to sell as sellers become exhausted, and that is when the market turns in the other direction. The same happens when we reach bullish extremes. It is really that simple. The difficult part of the equation is understanding when the market reaches those extremes. So, a number of years ago, I penned the following series of articles explaining our methodology as to how we make that determination:
This Analysis Will Change The Way You Invest Forever - Part 1
This Analysis Will Change The Way You Invest Forever - Part 2
This Analysis Will Change The Way You Invest Forever - Part 3
This Analysis Will Change The Way You Invest Forever - Part 4
This Analysis Will Change The Way You Invest Forever - Part 5
This Analysis Will Change The Way You Invest Forever - Part 6
With all this being said, I want to issue a strong warning to all those that are starting to think that the banking issues have been abated. That is the furthest thing from the truth in my opinion, as I think we have only struck the tip of the iceberg with the recent issues. This issue will be rearing its ugly head over the coming years and has the potential to be even worse than what we experienced in 2007-2009. Therefore, I strongly suggest you read our public work on this matter in order to protect yourself now before the real tsunami hits. In other words, Noah, it's time to build your ark while you still have the opportunity:
Safer Banking Research Articles
In the meantime, whereas most were thinking I was crazy about my expectation for the market to rally to 4300+, we are now getting there. And, as the market seems to be turning quite bullish, I am starting to turn quite cautious.
The market still has more room for the upside, but I think it is time for everyone to be tightening their risk management. Once this rally completes, I am expecting a sizeable drop in the market. And, as I have outlined many times before, the nature of that drop will tell me if we will continue higher to 4500/4600SPX next, or if the market is starting a drop to 2700/2900SPX.
Yes, I know those are majorly different outcomes, but the market has the potential for either resolution based upon the nature and structure of the rally off the October low. So, until I see how the market drops in the coming months, I intend to tighten up my risk management, so I am not caught holding the bag in the event this rally presents us with the high we see in the market for the next two to three years.
Support is currently in the 4205-4245SPX region. And, should we see a sustained break of that support, that is the initial signal that the market has begun what could be a sizeable drop. We will have to analyze the nature of that drop in order to determine the next multi-hundred-point move in the market over the coming year. Should we continue higher over the coming two weeks, I will raise that support level.
So, the main point I am trying to make this week is that when many were uber-bearish, I was expecting the market to rally to 4300+. Yet, now that many have begun to turn bullish, I am now turning quite cautious, especially since we have now arrived at our expectation for 4300+ that we set many months ago.
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Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).
Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.
For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.
As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.
As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.
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