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Stocks , Investing , US Markets

How “Insane Optimism” is at Work in the Stock Market

“Stock investors are so bullish that they are…”

by Bob Stokes
Updated: April 25, 2023

"Stock investors are so bullish that they are..."

Many technical indicators are highly useful, yet the price moves of the stock market really boil down to two things: optimism and pessimism.

Major trend turns tend to occur when extremes are reached in either optimism or pessimism.

Most recently, optimism has been in charge. The question is: Has an extreme been reached?

Well, there are at least two signs which strongly point to a "yes" answer.

The first sign to which I'd like to call your attention regards the S&P 500 dividend yield. What you need to know is that stock prices tend to top when dividend yields are low and bottom when they're high.

Robert Prechter explains how this is related to optimism and pessimism in his recently published April Elliott Wave Theorist:

Investors in a positive mood bid up stock prices regardless of dividend yield, and investors in a negative mood adjust stock prices lower regardless of dividend yield. Yield simply follows the waves of optimism and pessimism.

The April Theorist provided more insight with this chart and associated commentary:


[The chart] shows that S&P companies' dividends today yield only 1.66% annually. Investors are putting up with that low payout despite the virtually riskless 5% yield of Treasury bills, which is three times as much. Stock investors are so bullish that they are certain their capital gains will make dividends irrelevant.

The second sign of insane optimism is revealed in this March 29 Bloomberg news item:

They've become a high-speed, high-risk, high-reward tool in turbulent markets: Options with shelf lives so short they expire in less than a day [known as "zero-day-to-expiry' options].

...Success is far from certain, and even some Wall Street pros don't fully understand them.

That hasn't deterred thrill-seeking retail investors from piling into 0DTE options.

As the April Theorist says:

Options Gambling Is Another Symptom of Historic Optimism

Looking beyond sentiment extremes, the April Theorist also shows the stock market's Elliott wave structure in monthly and hourly charts. The information revealed in these charts is very much worth knowing.

Learn how you can access the April Elliott Wave Theorist by following the link below.

“Only 8 Stocks”

The recently published April Elliott Wave Theorist says:

The S&P Composite has made headlines for being up on the year, but that statistic masks what’s happening to most portfolios, because the net gain is due to only 8 stocks out of the 500 in the S&P. The other 492 stocks are collectively down on the year.

The April Elliott Wave Theorist is filled with insights on the stock market, bitcoin, bonds, real estate and silver.

The Elliott Wave Theorist has published monthly since 1979 and is part of our Financial Forecast Service, which also includes the monthly Elliott Wave Financial Forecast and U.S. Short Term Update (thrice weekly).

The Financial Forecast Service can help prepare you for what's likely ahead.

Learn more by following the link below.

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