A Sudden Decline in Market Sentiment is Bullish for Stocks
Stock-Markets / Stock Markets 2018 Apr 02, 2018 - 10:27 AM GMTBy: Troy_Bombardia
The stock market soared from 2017 to January 2018. The rally’s acceleration in January resulted in extremely optimistic sentiment from consumers.
- 30% of consumers polled in January by the Conference Board expected stocks to rise in the next few months.
- Today, only 6% of consumers polled by the Conference Board expect stocks to rise in the next few months.
This is a drastic reversal in stock market sentiment. It is a medium term bullish sign outside of a recession. The U.S. economy is nowhere near a recession today. Recessionary cases don’t apply to today.
Here are the historical cases in which the Conference Board Consumers’ Net Expectation of a Rising Stock Market fell by more than 20% in 2 months.
- March 30, 2018 (present case)
- June 29, 2012
- March 31, 2008
- February 29, 2008
- March 30, 2007
- March 31, 2003
- July 31, 2002
- September 30, 1998
- April 30, 1997
- September 28, 1990
- August 31, 1990
Let’s look at what the S&P 500 did next.
June 29, 2012
This occurred after the S&P’s “small correction” bottomed in early June. The S&P went up over the next 2.5 months before making another “small correction”.
March 31, 2008
This was a bear market + recession case. It doesn’t apply to today because the Medium-Long Term Model predicts neither a bear market nor a recession.
Nevertheless, the S&P still went up over the next 1.5 months after this signal came out.
February 29, 2008
This was a bear market + recession case. It doesn’t apply to today because the Medium-Long Term Model predicts neither a bear market nor a recession.
Nevertheless, the S&P still went up over the next 2.5 months after this signal came out.
March 30, 2007
This occurred after the S&P bottomed from a “small correction” in March. The S&P rallied another 3.5 months before the next “small correction”.
March 31, 2003
This occurred after the S&P’s final bottom of its 2000-2002 bear market (a triple bottom). The S&P soared over the next year.
This historically case does not apply to today because it occurred AFTER a 50%+ bear market. The S&P has not fallen 50%+ today.
July 31, 2002
This occurred after the S&P bottomed in July. The S&P chopped higher over the next 3 weeks.
This historically case does not apply to today because it occurred AFTER a 50%+ bear market. The S&P has not fallen 50%+ today.
September 30, 1998
This occurred while the S&P was making a retest of its September bottom. The S&P soared over the next half year.
April 30, 1997
The S&P soared over the next 5 months before it began a “small correction” in October 1997.
September 28, 1990 & August 31, 1990
The S&P fell 1 more month after August 31, but that was the bottom of the “significant correction”. The S&P soared over the next half year.
Conclusion
This is a short-medium term bullish sign for the stock market. The stock market might fall a little more in the short term, but the downside is limited.
The stock market will trend higher over the next few months (short-medium term), regardless of how volatility the uptrend is.
By Troy Bombardia
I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.
Copyright 2018 © Troy Bombardia - All Rights Reserved
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