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The Dow's Drop: Hit Bottom?
Our Analysis AT NO COST
Imagine you've stepped into a near-empty elevator going UP. Yet it stops at each floor, and more people step in each time. Soon you're packed like a sardine against the back wall. Then, at the next-to-last-highest stop, the doors open and in steps a team of Sumo wrestlers.
What happens next is predictable: The elevator load exceeds maximum weight. The cable snaps and the lift comes crashing down.
This describes sentiment extremes in the world’s leading financial markets: When the crowd of market advisors, investors, traders, analysts, brokers, media outlets and all around “experts” share a bullish viewpoint, prices are set to come hurtling down.
It’s the great paradox of the market: Unchecked human emotion is an investor's own worst enemy. On this, the Monday, June 16 publication of Short Term Update presents the following close-up of the Dow Jones Industrial Average versus Daily Sentiment Index since July 2006.
Editor’s Very Important Note: Starting Wednesday, June 18, EWI launches its celebrated Financial Forecast Service FREE WEEK. Instant access to the entire Short Term Update service is NOW available at the unbelievable discount of 100% OFF the original cost. If a single chart from the June 16 Short Term Update can expose the flaw in the “Buy high, sell low” wisdom of mainstream economics, imagine what the 11 other snapshots accomplish. You can’t afford to miss this amazing opportunity.
There’s no denying what the above chart tells us: The last FIVE readings of extreme pessimism have occurred right as prices were rebounding off meaningful bottoms. The opposite also holds true for extremes in optimism: Time and again, they mark significant tops.
As for the most recent turning point -- The October 9, 2007 peak in the DJIA -- the October 9 Short Term Update stepped up the urgency of its analysis with this message: “Odds have increased that a market high is in place. The structure, coupled with turns in the other markets, suggests a top is in place. The potential, at the least, is for a large selloff.”
The 2,000-plus point sell-off to a three-month low since then speaks for itself.