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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Fear Is Good

Stock-Markets / Stock Market Sentiment Aug 25, 2014 - 11:52 AM GMT

By: Investment_U

Stock-Markets

Steve McDonald writes: Chesapeake Energy (NYSE: CHK), the brainchild of Aubrey McClendon, has been though the ringer for the past few years. Its problems included McClendon using it as his personal piggy bank, or some such accusation; buying far too many assets in the shale areas in the U.S. and ending up in a cash crunch; gas prices dropping to ridiculous levels; and the stock price getting crushed from around $60 to the low teens.


The road back has not been an easy one, but the company made significant strides in simplifying the business as a whole and especially the balance sheet.

Production estimates are at the high end of the 2014 numbers, and 2015 estimates have been adjusted upward by almost 10%.

And the recent correction in gas prices, while it hurt recent quarterly numbers, has created a very nice entry point.

At the current price of about $25, the stock has a forward P/E of just 11.3, and, based on the positive production estimates, analysts are calling for as much as a 30% move.

Yes, it flubbed the most recent quarter, and, yes, this is still a turnaround story, but it’s one I think you should look at. It still has tons of shale assets, and shale is the biggest story of this century.

Getting the Jitters

Wall Street strategists are holding less stock now than in 2007: 51% now and 66% in 2007.

Professional and institutional money managers have been reducing their stock positions since 2013 - during a 30% run up.

Mutual funds are holding less stock now than in 2009.

You can’t look at any stock-related website or publication without seeing calls for a bubble or a sell-off, and never has this kind of focus on the up- or the downside of stocks been correct.

Stock jitters are everywhere in the market, and it is the best news stock investors have had in a long time.

In fact, the herd, in this case the Wall Street herd, is always 180 degrees out of sync with what happens in the market.

Merrill Lynch has been tracking an indicator since the early ‘80s that monitors negativity and exuberance in the market. When it has been at the current level of negativity, stocks have gone up 98% of the time.

The funny part about this signal is that the same money professionals who have fallen into a bunker mentality are the same ones Merrill monitors to get this broad market bull or bear signal.

In every case when the pros of Wall Street have been overexuberant - 2007 for example - they have been wrong, and the Merrill indicator has been right. And the current almost-unanimous negative opinion of stocks by the professionals is also wrong.

This contrarian Merrill signal was the only one that called the 30% move last year in stocks, and it is calling for a 22% gain in the next 12 months.

Anyone with any amount of experience in the market knows that when people are mortgaging their homes to buy stocks, that’s when it’s time for a bunker mentality; not when everyone is running for cover.

This Merrill indicator has finally produced the hard numbers that support what I have always known to be true: The herd is always wrong. And they’re wrong now, too.

The Incredibly-Stupid-Laws “Slap in the Face” Award

There are laws on the books in some states that are from the moon. In New Jersey, it is illegal to murder someone while wearing a bulletproof vest.

You cannot serve pretzels with beer in Wisconsin. That seems un-American.

In Alaska, it is illegal to wake a sleeping bear for a photo opportunity.

The list is endless!

But maybe the stupidest law I have ever heard of is from Missouri.

In Missouri, it is illegal to have an uncaged bear in your car. It’s OK to have a caged bear in a car but not an uncaged bear.

I wonder. Who came up with this kind of stupidity?

What do the lawmakers in these states do for a living? This is unbelievable.

Source: http://www.investmentu.com/article/detail/39493/nyse-chk-investor-sentiment-fear-is-good

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