Why Bear Market Rallies Are So Tricky
FOMO, the "fear of missing out," has returned in a big way
by Bob Stokes
Updated: May 21, 2020
Many stock market investors believe that prices have already bottomed. Numerous banks, brokers and financial firms have issued statements saying as much.
Indeed, the May Elliott Wave Theorist noted:
On April 28, Bloomberg interviewed four money managers to answer the question of "Where to Invest $1 Million Right Now." Cash was not mentioned.
All these professional financial observers might be right in their assessment that the bottom is in for stocks.
Then again, the stock market rise since the March 23 low might be a bear-market rally.
If so, it certainly has "done its job," meaning, as one of our global analysts put it in our May Global Market Perspective:
The job of [the first, big bear-market] rally is to recreate the optimism that existed at the previous highs.
One particular sentiment that the rally has "recreated" is known by the acronym FOMO, which stands for the "fear of missing out."
A little background: Toward the end of 2019, the FOMO sentiment was prevalent. Indeed, our December 2019 Elliott Wave Financial Forecast showed this chart and said:
Last week, the percentage of bulls polled in Investors Intelligence Advisors' Survey rose to 58.1, a new 13-month extreme. ... Last month we talked about the return of FOMO, the fear of missing out on stock gains; its last major outbreak occurred as stocks approached their January 2018 highs. In November, FOMO became far more entrenched.
As you know, it wasn't long thereafter that the stock market topped. The major price moves downward were historic.
Even so, the "fear of missing out" sentiment has returned -- again.
Here's an April 7 Bloomberg headline:
FOMO Overwhelms Stock Traders Who Have Begun Ignoring the Risks
Our May Elliott Wave Financial Forecast provides more insight:
According to Google News, the number of articles referencing FOMO and "stock market" increased from 227 in December 2019 to 244 in February 2020, right through the peak in the market. In March, the market's decline was well established, still the FOMO news count rose to 267.
So, yes, the rally has indeed "recreated" the prior optimism. One might even argue that the level of optimism is now even higher.
So, should investors take the stance that the bottom is in -- or, proceed with extreme caution?
We invite you to tap into our complete analysis, which includes a thorough review of the stock market's Elliott wave pattern.
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Why 5-Minute Stock Market Charts Look Like Monthly Charts
Suppose you have three charts of the Dow Industrials on your desk: First is a five-minute chart that covers the past six hours. Second is weekly chart which includes the past six years. Third is a monthly chart that goes back six decades.
Yet, if the time lines were not on the charts, could your distinguish one from the others?
The same chart patterns repeat at all degrees of trend. This "sameness" offers predictive value.
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