Wednesday, July 09, 2008

Retirement Fears

Over the past couple of weeks I have been reading blogs, newspaper articles, market information sites, magazines, etc to get some sense of how market people view the sentiment picture in the stock market.  I would summarize my findings by saying that the typical analysis goes like this: yes, people are turning bearish but they are not bearish enough to support a substantial rally, let alone a bull market.

This is a quite typical situation at market turns - there are always good reasons to think the low or the high still lies ahead of us. "Not yet, Not yet" is the common refrain.

My own view is that sentiment is about as dark as I have ever seen it. It is as bearish as it was near the 2002 bear market low. I've commented many times over the past six months on this condition. 

Above this post you will find some more evidence for my assessment. The first piece is the latest cover from Business Week: Retirement Strategies for Tough Times. I love the phrase tough times. It evokes the usual description of the depths of the Great Depression, and of  the recessions of 1974-75 and 1981-82. But as far as I can determine, we are not in even a mild recession and one is not likely to start this year

The cover right above the Business Week cover is the Time Magazine cover of July 29, 2002. This was virtually the exact low of the 2000-2002 bear market. Note the similarity in sentiment - fears about retirement.

The two charts at the top of this post show the Investor's Intelligence poll of newsletter sentiment. With the latest reading of 47.30% bearish, this bearish percentage is higher than at any time during the past 14 years, including the 1998 panic low and the 2002 bear market low. Wow!

This market is going much, much higher.


Anonymous said...

if you poured as much time into proper technical analysis instead of tracking sentiment from every source but the pet dog , you'd have a much better forecasting record. instead you flip-flop more than insane mccain.


Carl Futia said...

Yet more evidence that the low is in!

Anonymous said...

Hi Carl,

Your last comment had me laughing out loud. Good one!

Two questions:

1) You said the market is "going much, much higher". How much is "much much"? I'm guessing you mean new highs, but do you have any idea yet where the s&p might top out?

2)We don't have sentiment gauges going all the way back to 1929 and the decade that followed. The low came in in the early 30's, right? But the market took another two decades to return to prices seen at the 1929 peak. That was a time when things had pretty much fallen apart, 1 out of 4 people out of work, etc.

There are pundits today who raise the concern that we are facing a financial meltdown which could play out in a 30's style depression or worse. We are certainly dealing with extremes never seen before in terms of national debt, overseas trade balance of payments, and high consumer debt including a negative savings rate. If the meltdown scenario actually unfolds, sentiment gauges may no longer apply.

In your opinion, what is the probability of the world economy crashing that severely?

You've got a great blog here. Many thanks!


Carl Futia said...

S&P is headed for 1500 then for 1650.

Probability of WorldWide Crash = 1%

Anonymous said...

"S&P is headed for 1500 then for 1650"

From your mouth to God's ears....LOL. We'll see, I think we are going into the 10's on the Dow. Looks like we will give back all of yesterdays dead cat bounce. I still say we are already in the descent of the domed house..maybe with further declines in the market you might revisit the plausibility of that possibility. Kind regards, Janet

Glenn said...

What about the VIX? Don't we need 30+ for a good entry? I went some long today on the es at eod 1247.50

Thanks for putting yourself out there!

Anonymous said...


What are your thoughts about today's session? What could make you change your bullish guesstimates?


Anonymous said...

I agree, IT bottom a few hours away, 1230-35, Don't think we'll see 1500 this year but 1355 should be coming up shortly.

Anonymous said...

I think the readers of Carl's blog are confused. Clearly this is a forecasting blog and not a trading blog. Initiating trades long or short each time carl writes "prices are going higher" or "prices are going lower" would likely result in net losses over the short term but his macro forecasts are valid. Solution? Commentators on this blog need to learn how to scale into positions at predetermined levels and never chase the market.

Anonymous said...

carl don't get your foot contrary is a suckers game.. You are being played and you don't even know it.

Anonymous said...


Nice piece today, I essentially wrote the same thing this morning about sentiment. So many indicators I look at are in areas where important lows have occurred. % above 200, % above 40, % 2 channels below 200, etc. Then there is the 5 month RSI which dipped below 20, which is not commonly seen. The Disparity Index dropped as low as -12, many times -10 has led to bottoms, -20 or lower in major bears like 2002. The wave structure to the downside does not look complete quite yet, but might be close. Need a little more data.

To the poster above w.r.t. VIX, my opinion is that the VIX is misused. There is no definitive level where x occurs, there are better ways to use it (with Bollinger bands, etc). While going above 30 is nice (and is possible), it isn't necessary. The VXO however, is much closer to 30, and the VXN is over 30. If you look at the VIX pattern from the 2000-2002 bear market, each spike lower made a lower high in the VIX. That has happened in Jan, March, and so far, now. One reason might be a general acceptance that we are entrenched in a bear market (bullish sign). Another could be that investors, instead of using puts like they normally would, are using ETF's that short the market. I haven't looked at those, but I am sure volumes on those are running above average.
Just my 2 cents.

p.s. Another item on the VIX. Someone mentioned to me that it gives a sell signal when it goes below 20. Using that, you would have missed the last Dow move out of the 2002 lows that occurred from 9000 to 14,000. The VIX actually went below 10 at its lows.

Anonymous said...

Carl, it seems you are in denial... just like Mark Hulbert...

He's been writing bullish columes since the drop from Oct 2007... and it seems he is still in denial... Yes we will EVENTUALLY go higher... but the million bottom calling will cost you alot of money... keep on callling for bottom,eventually you will get right. But that's not a smart trader do. How many downside target have you changed already?!

Steve said...

I've seen sentiment in action much worse--witness GLW going from $100 in late 2000 to $1 in 2002; also II survey bears north of 60% in early 1995; also multiple Equity p/c ratios > 1; also TRIN is showing no panic, but we're extremely oversold on all other measures so we're close to at least a tradable low...Short ETF's could be affecting VIX, TRIN is a guess on my part...

Anonymous said...

carl's been making 1600 calls since the S&P topped out way back. one day he'll get it right one day. I think this blog is a self-fulfilling negative sentiment generator. Make bad calls then go into denial and then cry foul when people criticize you, and pawn it off as negative sentiment and a contrary indicator. That's just as bad as those doomsday cults waiting for armegeddon and stockpiling weapons, causing the authorities to reinforce some of their expectations.


Anonymous said...

I think Carl is essentially right, but there is one more decline coming for about a week. Should begin sometime Thursday.

Anonymous said...

I really dont think we have hit bottom... No Way!

I need to see at least 600 stocks print out new lows and like 5% drop in the markets where there is blood in the streets... I have not seen that and all i can say we are carving out a bottom and have not seen the VIX over 35 and Capitulation!

Good Luck