Putting a Miserable May Behind: Is the Stock Market Bull Set to Return?

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Putting a Miserable May Behind: Is the Stock Market Bull Set to Return?
EWI's latest, June Elliott Wave Financial Forecast shows you if today's sentiment indicators truly reflect a market bottom

By Nico Isaac
Tue, 07 Jun 2011 17:30:00 ET

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Last month, the US stock market suffered four straight weeks of decline for the worst May since August 2010. But now that that miserable run is behind investors, they are taking a page from the playbook of Don Henley's hit song "Boys of Summer." It goes "Don't look back, you can never look back."

Now into June, the mainstream experts are focused on the future. And, as far as they can see, the future of stocks is as bright as ever. Fact is, from its infamous early March 2009 nadir below 6500, the Dow Jones Industrials have soared some 80%-plus, while the S&P 500 has enjoyed its fastest doubling in its 57-year history.

The run-up has even sparked comparisons to an equivalent period in stock market history: the game-changing rally off the 1932 low. On this, the following excerpt from an April 2011 Fortune article fills in the analogy:

"The scale of the rally is enormous. We haven't seen anything like the surge since the Great Depression bounce backs of 1932 and 1935."

The implications of the comparison are so huge that EWI president Robert Prechter devoted the entire February 2011 Elliott Wave Theorist to the bull/bear evidence. In Bob's own words: "I wanted you to see the evidence so you can make up your own mind."

The "speed" of the advance in stocks today is indeed similar to that of 1932; yet as Prechter observes, one of the most striking differences is that investor sentiment in 1932-33 was the polar opposite of today. Back then, widespread pessimism had calcified into a solid and impenetrable mistrust of any market rallies -- as these headlines from the time make plain:

"Continuation Of Depression Seen By Fund Demands" (December 2, 1932 Herald-Journal)

"Eat, Drink, And Be Merry. Let us live now and enjoy it. Tomorrow we may be run down by a trolley car." (March 7, 1933 New York Times)

"In regard to the stock market, let us sound a little note of caution. People purchasing securities at these levels are just 'kidding' themselves from the long-term outlook." (April 20, 1933 Rochester Evening Journal)

YET today, optimism in equities is so ingrained that any lasting sell-off is scrubbed out -- or at best, dismissed as a temporary "blip." Here again, the rosy 2011 news items below stand in stark contrast to those from 1932-3:

Before the May rout: "Two Years In The Rally Is Alive & Strong. Investors can expect to keep making money." (March 10 MarketWatch)

-- AND --

After the May rout: "Bull Still Running The Show In Stocks. From a broader perspective, I think you'll find the overall bull market is alive and well." (May 16 Forbes)

1932: Skepticism of market rallies -- VERSUS -- Today: Denial of market declines. One coincided with a historic bottom. As for the other -- in the June 2011 Elliott Wave Financial Forecast, our analysts examine a slew of time-honored sentiment measures that send a very confident picture of whether today's market will truly "never look back."

You can put the just-published June Financial Forecast on your screen in minutes, completely risk-free.

PLUS, when you subscribe, you'll get instant access to Financial Forecast co-editor Steve Hochberg's new 42-minute video, "3 Historic Peaks in the Financial Markets -- And What It Means To You." You'll get an intensive, eye-opening look at the development of the greatest financial top of all time -- one that encompasses stocks, crude oil, commodities, gold, property prices, junk bonds and more.

Learn more about the new Financial Forecast and your risk-free, intant access offer >>

Tags: 1929 Stock Market Crash, Robert Prechter, bull market, Dow Jones Industrial Average (DJIA), sentiment

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