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Financial History Shows How Sentiment Extremes Repeat

Is the stock market headed for another "permanently high plateau"?

by Bob Stokes
Updated: February 07, 2019

In 1929, economist Irving Fisher said:

Stocks have reached what looks like a permanently high plateau.

Three days later, the stock market took a dramatic dive, and the Great Depression eventually followed.

Fisher's statement became legendary, yet that wasn't the last time that a stock market observer made a bold prediction.

As Robert Prechter's Conquer the Crash noted when the book first published in 2002:

One thing that does happen repeatedly near a top in the stock market is that investors raise their upside forecasts dramatically. In 1999-2000... books came out calling for Dow 36,000, Dow 40,000 and Dow 100,000.

As we know, those predictions came just in time for the start of a bear market in 2000. But the bull market that followed rekindled the sentiment that stocks had nowhere to go but up.

In 2014, one news source noted a forecast that was made near the crest of the 2007 bull market peak:

Goldman Sachs chief strategist... set an uberbullish 1,675 price target for the S&P 500 for [2008].

However, the stock market index ended 2008 at 903.25, which was a 37% drop and 46% below the strategist's target.

After the stock market bottomed in 2009, an even longer bull market followed, with the DJIA reaching an all-time high of 26,951.80 on Oct. 3.

Even though that was four months ago, optimism has returned, despite a very volatile Q4 2018. Our January 17 Elliott Wave Theorist notes:

There was a brief bout of pessimism heading into the low of December 26, but it has completely reversed over the course of the market's... [January] rally.

Indeed, this Jan. 15 headline captures the sentiment (Bloomberg):

A $1.8 Trillion Investor Says U.S. Stock Rally Has Years to Run

Is the stock market reaching "what looks like a permanently high plateau" again?

Sentiment is not everything. The stock market's Elliott wave pattern, a more detailed snapshot of investor psychology, is also telling a compelling story -- right now.

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