The Slope of Hope

Mark Hulbert has just posted a column on MoneyWatch entitled “The slope of hope”. He argues that the short term stock market timers he monitors have become very much more bullish than they were at the April 2005 low and that this has bearish implications for stock prices.

You probably have guessed that I don’t agree with his conclusion. And this illustrates why I don’t rely on newsletter survey data to form the basis of my contrary opinion thinking. I have observed that public sentiment changes very slowly, so when it reaches a bearish extreme as it did in April it will take some time (certainly more than 6 weeks) for it to return to neutral levels, let alone bullish ones. On the other hand newletter writers can change positions on a dime.

My basic starting point for contrary opinion thinking is that media are in the business of telling people what they want to hear. So if you observe what the media are saying you can get a good idea of what people’s attitudes are towards the market. Most commentators, especially the market technicians, are currently telling their readers to be bearish. So my current reading of investor sentiment is that it is still basically bearish. Mark Hulbert is one such commentator. As another example, take a look at this column in Barrons’ Online.

I think that public sentiment is still bearish enough to support a rally to 1350 in the S&P by the end of this year.