One way the market is always consistent is that it never does what the consensus expects. Someday the madding crowd may wise up to how contemptuously it is viewed, and investors will have to come up with some other empirical observation. Until then, even sophisticated players will continue to fall prey to the lure of a popular trend. In so doing, they have become a tool of technical analysts.
Lately, one of the most often-cited statistical indicators pits professional against professional: the ratio of bullish subscription advisory services to bearish advisory services. Not that these sachems-by-mail are any wiser than the rest of us, but they do make their living pretending to divine the profitable undercurrents of stock movements. They are more visible and measurable, and less flighty, than the superannuated odd-lot studies of public sentiment that used to represent the always-wrong small traders. Ironically, the advisory services themselves -- many of them statistic based -- have become an object of scorn. Theorists insist that when more advisory services are bearish than bullish, the market won't go down, no matter what.
Certainly, this fall's market action is an example of the phenomenon. When the Dow Jones Industrials set their record drop in September, the bear bandwagon got crowded. And on the evidence, who wouldn't have jumped on? The 141-points-in-a-week plunge seemed to signal a breakdown in stocks, and to many, the economy looked depressingly like 1929. Bank failures galore. Agriculture and heavy industry in ruin. Softness creeping into real estate. Interest rates on the verge of turning back up. A record imbalance of payments. A record deficit. The Gross National Product falling behind predictions. The dollar at the mercy of foreigners. A recession around the corner. Tax-reform uncertainty.
No wonder the number of out-and-out bear services, plus those that predicted a significant correction, exceeded bullish opinions by about two to one for three straight weeks. The thing is, the market didn't go down. It recouped lost ground and then some, eventually to settle into the friendly environs of DJIA 1,800.
The Street talk now is that the Dow will have to go through 2,000 before a bull-driven bandwagon gets under way. Only then will the market attend to the inescapably dire fundamentals cited above, and -- sometime next spring -- collapse.
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