Take Investor Optimism... with a Grain of Salt
by Editorial Staff
Updated: February 24, 2020
Did investors' extreme optimism actually accelerate the Dow's 1,000+ point collapse Monday?
Unless you're familiar with Elliott, it may seem counterintuitive. Nonetheless, the answer is "Yes, absolutely." We have seen it again and again, throughout history.
In fact, our Friday, Feb. 21, U.S. Short Term Update warned subscribers (again) that extreme optimism leads to a declining stock market.
A Bloomberg story today notes that daily average revenue trades (Darts) at discount brokerages such as TD Ameritrade and E*Trade, "have almost doubled to an all-time high since last September." Small investors are piling into high-flying stocks such as Apple, Tesla and Virgin Galactic Holdings.
According to Jason Goepfert, president of Sundial Capital and purveyor of SentimenTrader.com, "retail traders have become manic." The vice president of trading and derivatives at Charles Schwab zeroed in on the dynamic. "The fact that we have been in a bull market for a long time, people are just optimistic."
That's exactly right. It's not about free trading commissions or Fed policy or coronavirus fears or any other rationalization of why the market rises or falls; people are simply optimistic.
When optimism reaches its zenith, prices will start declining. The time might be at hand."
The next trading day, February 24, stocks took the biggest one-day nosedive in two years.
That's now behind us. The question now is, where will stocks go next?
Editor Steve Hochberg has just published a new Update. (The Update publishes every Monday, Wednesday and Friday.)
In the new issue, Steve explains the implications of Monday's drop and tells subscribers exactly where prices should head next. You also get his near-term outlook for bonds, gold, U.S. dollar and more.