Wrong Way Corrigans of Wall Street Come Out in Droves to Yell “Stock Market Crash”
The “analysts” of Wall Street are often as accurate as those who LIVE on the street. Referring them to as “Wrong Way” Corrigans (https://en.wikipedia.org/wiki/Douglas_Corrigan) would be a disservice to the real Mr. David Corrigan, who embodied the label, “Wrong Way”, as a term of endearment.
Corrigan was at least a leader at something. Yes, he was a bit mixed up about his direction, but being the first person to be nicknamed for going in the wrong direction isn’t terribly dissimilar from the names that have been given to some of Wall Street’s elite, who are, more often than not, WRONG, but well paid for it.
Being part of the “herd” is usually the “Wrong Way”. A member of the pack has a much EASIER time of being wrong. It affords anyone belonging to the majority, the luxury of BEING WRONG with a built-in excuse. “He did it, too!” No guts, no glory, is the story of the “Masters of the Universe”.
Being contrary is much tougher, since one has to stick out one’s neck and risk looking like a fool. Buying low and selling high, requires one to be in the minority. Stocks only get cheap when they are unloved. Eight years ago, in a Blog known as “Marko’s Take”, I took to doing exactly that: I stuck my neck out and someone named Mr. Market, who doesn’t like to be predictable. chopped my off head and watched it roll into the basket. To make matters worse, I doubled down and double-doubled down in a series of blog posts all with the term “Hindenburg Omen” somewhere in the title. While I was flat out wrong then, playing it safe is a recipe for being consistently wrong. Here’s a couple of them for your reading pleasure: You can find them here:(http://markonomics101.com/2018/03/17/hindenburg-omen-confirmed-or-was-it/) and (http://markonomics101.com/2018/03/15/hindenburg-omen-all-over-the-financial-press/) Thus, I’ll protect myself by keeping that term in the text.
The air seems filled with dread about Monday morning’s opening. I was struck by a particular piece, called “It Was Black Friday Before Black Monday” by David Rosenberg (https://www.zerohedge.com/news/2018-03-24/david-rosenberg-it-was-black-friday-black-monday), suggesting that we may have some sort of GAP down opening and fear and panic over the weekend. A Crash type of GAP would be an opening price of between 5% and 10% LOWER than the close on Friday. During Thursday and Friday, the Dow Jones Industrial Average lost nearly 5%. If we tacked on another 5-10% lower, we’d have seen 10-15% in two trading days plus a split a second of third trading day. If the people who believe that Monday will be a gap down day are right, then you’re pretty much out of luck.
Right now, I’m not sure what to expect: I was nearly alone in calling for a Crash, the first time it appeared here in Markonomics1o1: (http://markonomics101.com/2018/03/06/dow-jones-industrial-average-remains-in-crash-pattern/) , although on our sister page on Facebook, (https://www.facebook.com/Markonomics101/) we began to throw the CRASH word out as early as March 1, but then only somewhat speculatively. We’ll have another post before the bell rings tomorrow to assess the odds, with “Charts As Our Friends”, we know we can’t go wrong.
So, with all the Wrong Way Corrigan’s now starting to see things our way, have enough of them gotten into the boat so it can be tipped over? The reason that most players are wrong most of the time is actually quite logical. Markets go up as folks feel more positive or “BULLISH”. The CONVERSION of Bears to Bulls is what drives prices higher, so the more extreme the “Sentiment” is, the more likely the Market is at an extreme itself. Too many bulls means no one is left to buy, and conversely. That’s one reason that Wall Street are a bunch of ” Wrong Way” Corrigan’s. Most people in the market KNOW this, and yet it still happens.
A very well respected firm, known as Investor’s Intelligence, publishes its weekly survey of investment advisors called “The Advisors Sentiment Report” (https://www.investorsintelligence.com/x/us_advisors_sentiment.html. Their own description of their survey: “This survey has been widely adopted by the investment community as a contrarian indicator and is followed closely by the financial media. Since its inception in 1963, our indicator has a consistent record for predicting the major market turning points.”
Surveying a broad assembly of respected views: “We study over a hundred independent market newsletters and assess each author’s current stance on the market: bullish, bearish or correction. Since we have had just four editors since inception, there has been a consistent approach to determining each advisors stance and his prior viewpoint”.
Four decades of data to set our precedent: “Our weekly sentiment data runs consistently back to the 1960’s. Current readings are put into context against historic precedents.”
A contrary indicator…but only at extremes: “We don’t necessarily take a contrarian view to the newsletter writers in our survey. A large part of the time our sentiment readings remain neutral. We consider the norm to be 45% bulls, 35% bears and 20% neutral. However, we do pay attention to extreme readings in both bulls and bears and also to historically significant runs of more bulls than bears. To summarize, advisors are only wrong when you get too many of them start thinking the same thing”
A comparison of the Dow Jones Industrial Average against the Investors Intelligence Survey to see if can glean anything, especially for the propects for the opening on Monday: One can see that the two market bottoms in mid-2015 and beginning of 2016, coincide with the small of amount of bulls and the all-time high hit in January of this year was marked by an EXTREME 80% of advisors who were bullish.
This chart of advisors bullish is very revealing and disconcerting the about the Dow Jones Industrial Averages prospects over the next few weeks because of:
1). How FAR the Dow Jones Industrial Average can still fall.
2) The existence of WAY TOO MANY BULL
3) The Investor’s Intelligence survey for the week ended March 23, 2018, had the percentage of bullish at a still lofty 54%, which still leaves room for that to shrink quite a bit, before a real bottom is in.
We will have an update opening bell tomorrow going thru the overseas market, and the cryptocurrency sector, which often can be a leading indicator. If they’re down, the stock markets are ripe to follow.