Here’s What’s Almost “Never Rewarded” in the Stock Market
NASDAQ: This has reached the “third highest extreme on record”
by Bob Stokes
Updated: December 23, 2020
If you go back through the pages of financial history, you will find that lopsided consensus is almost never rewarded.
It makes sense if you think about it. If almost all investors have taken "the same trade", so to speak, then there's almost no one left to keep pushing prices higher or lower (depending upon whether the majority are bullish or bearish).
The reason why a lopsided consensus usually develops in the first place is described in the book, Prechter's Perspective:
[Typical investors] get interested in the markets at the top of every bull trend, and they get scared out at bottoms... Since people's hopes and fears are the engine of the market -- their hopes make it go up and their fears make it go down -- the result is that most people must lose money. Their fears make them sell out near bottoms, and their hopes make them become fully invested near tops.
Is that the situation we have now with the NASDAQ?
Well, here's a chart and commentary from our Dec. 18 U.S. Short Term Update:
Last night, the Daily Sentiment Index (trade-futures.com) of NASDAQ traders pushed to 94%, which made the 5-day average rise to 92.4%. This is the most extreme reading in over 14 years and the third highest on record. Traders are nearly certain that the NASDAQ will continue to rally from near current levels... The NASDAQ has rallied since March 23 and traders are as bullish as at any time in the data's history. Such a lopsided consensus is almost never rewarded.
Wall Street professionals are also part of the lopsided consensus.
Here's just one example from a Dec. 9 CNBC article:
[A] J.P. Morgan Chase strategist... expects the stock market surge to continue through 2021.
Only time will tell if this strategist proves correct.
One thing's for sure: that strategist's expectation is shared by many people and you want to consider an alternative perspective at this juncture.
You may be very glad you did by the time 2021 is over -- or, even well before then.
You can get that "alternative perspective" by reviewing our flagship investor package, The Financial Forecast Service.
Follow the link below to get started now.
Are You Waiting for a "Normal" Pullback in the Stock Market?
If the answer is "yes" -- then please beware.
In EWI's view, this is a highly hazardous assumption. Why?
Well, there is no such thing as "normal" in the stock market -- only patterns within a fascinating fractal.
EWI's job is to analyze the patterns and provide you with our best forecasts.
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