Sentiment Unwind


Since I started this blog, I’ve forged some incredible friendships with people I would have never met except for a chance email or Twitter exchange. I’ve also received some hilarious hate-filled messages from people who oppose my views on the market and wish me ill. In opposition, perma-bulls are much more pleasant to deal with than perma-bears. Most of the bulls at least enjoy watching the market tick higher and gather momentum.  Bears, on the other hand, would find no more satisfaction in a drawn-out collapse than waking up to a world in which the global capital markets were simply turned off for good.

Here is a message I got in response to a post last April. The market was getting extended and about to dip into correction, but no one was even remotely bullish, even at the highs. While I was expecting some correction, I was also warning not to get too excited for the downside. Specifically, I wrote: “We will never, ever, ever go back to the lows of 2009.”

Based on the fact that I did not feel we would revisit a generational low, I received this message, and many others like it:

stunningly moronic assertion, that diminishes everything you do in regards to market analysis.  we will without question revisit the 2009 lows, and surpass same on the downside, anybody who believes differently is either woefully inexperienced, blind to history or a twentysomething know-it-all with wafer thin market knowledge.

Fast forward to last week when I sent out a couple messages on StockTwits warning that momentum was slowing, and too many were indiscriminately buying broad market instruments into new highs.  This behavior occurs when participants become myopic and enter a predator-chase mentality to higher prices.  It’s not a sign of “the end” but it is unhealthy in the short-term.

Based on the fact that I didn’t feel markets would go higher everyday forever, I received this communique:

With Bernanke throwing $4Billion/day into US & world markets. Useless warning. Bulls will rule.

Two situations where I’m cautious after a long run. One calls for renewed death and destruction, and the other has resigned to the force of the uptrend. I think it’s fair to say that sentiment among those who watch the market closely has changed a lot in a year.

The old regime stridently opposed higher prices and maintained some notion that a “reckoning” was owed to the market. The current regime is a mix of surrender to rising prices and clinging to the old fears. This can be summed up as “Oh, you like this rally? SOLD TO YOU! (loser!! ROFL)”. This is the the latest incarnation of a long sentiment unwind. Buyers are still perceived to be losers and bagholders in this “rigged game”. It still feels good to offload stocks onto the losers who buy them.  The big difference is, they’ve realized there’s no prize in fighting city hall.  Better to get with the program.

A time will come again when it will be cool to own stocks, and the winners will be the ones who bought them but we’re not even close to there yet. If you talk to the people who have never heard of Stocktwits about their exposure/feeling towards equities it’s still firmly negative (but improving).  This unwind probably still has a ways to go.

I don’t want this post to mess with the my inbox flow. Please keep sending emails, both the encouraging stuff and the vulgar and depraved nonsense.

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