Thursday, May 31, 2007

All the Gains, Without Gurus

This was the heading of a front page, above-the-fold story by Greg Burns in the Chicago Tribune this morning. It was accompanied by a chart showing the cash S&P 500 at a new record close yesterday, higher than the highest close recorded at the 2000 top.

(I can't show you an image of the front page because the Tribune's web site didn't post this image correctly today. )

A few days ago I also commented on stock market sentiment as evidenced by a front page story in The Wall Street Journal. My reaction to today's Tribune story is similar. The story certainly shows a growing awareness of the bull market in stocks (which is approaching its five year anniversary). It will also encourage the emergence of bullish attitudes. As such it is a small piece of evidence that the market is approaching a top of some significance, but I don't see it as a table-pounding warning of an imminent top. There has to be much more media commentary along the same lines first (Jay Leno, where are you?).

I think my caution about the significance of this story is emphasized by this Burns' observation: "In fact, the bull run of today has failed to generate anything approaching the fervor of the late 1990s, when the dot-com boom made stock-picking a national pastime."

All in all I see this story as laying part of the foundation for a significant top later this year (July or late October ) but I also take if for evidence that the drop from any such top will be limited to 15-20% in the averages.


Anonymous said...

I find your Blog very informative and understandable even when I do not agree with you. But, I do not understand why you feel the coming top in the market will only cause a 15 to 20% decline in the averages.

Why you may be correct, I do not understand why a more significant correction could not be anticipated. Could you explain your rational more fully?

Carl Futia said...

My reason for expecting only a modest decline is simple.
The currentstate of public sentiment toward the stock market is skeptical a skeptical one. So any break of even 10% from near current levels will turn the public extremely bearish. In such circumstances I think the downside will be limited.

Anonymous said...

OK, that does seem like reasonable prediction.

Thanks for the explanation.

Anonymous said...

Part of me wonders if folks are still too busy being all googly-eyed over their home prices to even pay attention to stocks.