Wednesday, May 16, 2012

The contrarian sentiment of an article about contrarian sentiment

Articles like this one crack me up: Even Pros Don't Like Stocks: Could That Be Bullish Sign?

Every stock market sentiment indicator that I use is still on the bullish/optimistic side of neutral, which is bearish for the market because sentiment is indeed a contrarian indicator. But this article from Yahoo! Finance apparently found one specific indicator, "the consensus view of U.S. equity strategists from major banks", that is actually somewhat pessimistic about stocks and therefore pointing to a bullish forecast.

Even if this one indicator is pessimistic (and therefore bullish) as advertised, there are a couple of flaws with this article. First, the title ("Even Pros...") implies that there are other groups that don't like stocks, but the article itself supplies zero specific examples of pessimism elsewhere, just a quote from one strategist who says "we already know that investors of all types currently hate stocks." Actually we don't know this, because other measures of sentiment are still "pro-stock." The second related flaw with the article is that "U.S. equity strategists from major banks" comprise only a small fraction of all investors, and therefore can never be representative the overall bullish/bearish sentiment in the market.

Most of all, an article like this one that gives a bullish forecast - regardless of the reason - is in fact optimistic about stock prices and therefore just another bearish indicator. Yes, "ironic" pretty much sums up the stock market.

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