Bulls vs. Bears: This Sentiment Survey Provides Important Insights
Here’s how to get “a perspective on the market’s general position and outlook”
by Bob Stokes
Updated: November 24, 2020
As we enter the waning weeks of 2020, stock market sentiment is extremely positive.
Consider this Nov. 18 CNBC headline:
Dow could hit the 40,000-point level next year, analyst says
Yes, that's possible. Since the March low, the Dow's strong rebound carried into record-high territory. Only time will tell if the Dow will tack on another 10,000 points next year.
Quite a few other market observers are also highly optimistic.
Here's an S&P 500 chart and commentary from our Nov. 18 U.S. Short Term Update:
It's been 148 weeks since the stock market pushed to a high in January 2018... The Investors Intelligence bull-bear spread hit its highest extreme in 31 years in conjunction with the January 2018 high. Since then, there have been only 4 weeks out of 148 when there were more bears than bulls despite an S&P decline of 20% from September 2018 to December 2018, and a decline of 35% from February 2020 to March 2020. Bulls have outnumbered bears 97% of the time, which shows an entrenched optimism among advisors.
This "entrenched optimism" could remain "entrenched."
Yet, financial history shows that sentiment extremes -- optimistic or pessimistic -- are eventually met with often dramatic reversals.
Elliott wave analysis can help you identify such junctures.
As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:
The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.
The next major turn in stock market prices will likely be one for the history books.
Learn why as you read our flagship investor package: The Financial Forecast Service.
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Here are EWI, our analysts regularly review 100+ market indicators to keep subscribers ahead of big price turns. Right now, one of these indicators -- a measure of the stock market optimism, as reflected by small options traders -- is flashing a warning signal. Our monthly Financial Forecast co-editor explains.