Posts filed under “Psychology”
Source: Chart courtesy of Carl Swenlin, Decision Point (annotations by Ritholtz)
One of the best ways to identify a market that is exhausted is to look for divergences between Breadth (i.e. the number of advancing equities versus the number of declining ones) and Price (i.e. new highs). That is a concept that Paul Desmond of Lowry Research has researched and written about many times over the years.
As the chart shows, markets saw major divergences in both 2000 and 2008, as stocks continued to make new highs in prices but failed to do so in the advance-decline line. Prices kept rising, but fewer and fewer issues were participating in the new highs.
Typically, this is reflective of a narrow market being dragged upward by a handful of mega-cap stocks.
That is not what we see today. Market breadth remains broad, with lots of equities participating in the rally. There is not any major divergence between the advance-decline line and equity prices. Hence, the breadth is confirming price, strongly suggesting that this current bull market rally is not over.
Timers and top-callers be warned: We may certainly have minor or intermediate corrections, but this remains a bull market.
Note: We will explore this issue in greater detail at some future date.
The past few weeks, I have been arguing against the notion that we are in a bubble. Let’s look at the other side of the argument: What is the (rational) bear case? We know stocks are no longer cheap, and this bull — already up 160%+ — is on the high end of the range….Read More
“The term bubble should indicate a price that no reasonable future outcome can justify.” -Clifford Asness Fridays are the day I like to wax philosophical about all things market related, with an emphasis on the failings of your wetware. This week is no different. The motivation for this week’s musings comes from…Read More
These bullet points were from a (much longer) Merrill Lynch research piece last week. “With most of our market indicators flashing green, we address the bear cases below to either debunk them or provide evidence that the risks are priced into stocks.” 1. “The 5-year bull market is long in the tooth” 2. “Everybody’s bullish…Read More
“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.” ~ Albert Einstein What is intuition and how might it help or hinder an investor’s decision making process? A good philosopher begins with definitions, otherwise they…Read More
Source: BofA Merrill Lynch & Bureau of Economic Analysis I wanted to point you to a quick chart from Ethan Harris and his global research team at Bank of America Merrill Lynch. It addresses something I have referenced before — the idea that so many folks could be accurately spotting a bubble in…Read More
Source: Barron’s If you have been paying any kind of attention to the mainstream media the past few years, you may have noticed quite a bit of bubble chatter. We have a tech IPO bubble and a stock bubble and of course a bond bubble. This is caused by a global central bank…Read More