This recent Chartcraft commentary sheds some light on historical sentiment figures. With any subscription to a Chartcraft publication they will send you daily e-mails loaded with commentary and p&f technicals:
"BLAST FROM THE PAST/SENTIMENT. The big 1969-1974 Bear Market saw the Value Line Index lose 75% of its value, while the Dow was just down 45%. The last couple of years of the decline was much like the 1930-32 period in that the
market never went down a lot, except in August when it fell 15.5% between 8/9 and 8/29, it just dropped persistently. It was much like getting the blood drained out of you a drop at a time. P/E's got down to 10 and then to 9 and then to 8 and then to 7 and then to 6 and then to 5 and then to 4.
These were the greatest bargains I've ever seen, but people didn't want to know about stocks, they wanted the comfort and Safety of CD's. (Certificates of Deposit, not Compact Discs).
Focusing on 1974, which was the worst disaster since the 1930's, the Dow hung in better than everything else and by June was actually a bit above its 1973 close, but all the other averages were down with many, many stocks losing 95% of their value by the end of the year. Inflation, fueled by the huge rise in energy prices was high. During the year, the Prime Rate got up to 11.5% by Mid May, the Arabs lifted their Oil Embargo in March, the Yen was devalued in January, President Nixon resigned in August and was pardoned by President Ford in September. October saw the Collapse of the Franklin National Bank and at the end of December Gold became legal in the United States for the first time in over 40 years. The Dow did end the year with a loss of 27.6%.
In the Summer, about half the people who worked here were laid off.
From a technical standpoint, many averages made their lows in October and the Transports did not confirm the December low in the Dow which was on 12/6 at 577.60 and was down 45.1% from the all time high.
Our Sentiment readings reflected this pessimism with advisors showing more Bears than Bulls for 42 of the first 44 weeks of the year. This is kind of the reverse of the optimism we have been seeing for the last three years.
Normally a reading above 59% for the Bears is a very strong Buy signal, but from 7/5/74 (DJIA 802.41) to 10/11/74 (DJIA 584.86) we saw 15 weeks in a row with readings above 59%. They were 59%, 60.3%, 67.2%, 67.9%, 69.6%, 67,9%,
66.7%, 67.2%, 64.9%, 59.3%, 63.0%, 66.7%, 60.0%, 64.3% and 67.2%). For the rest of the year there 5 weeks with more Bears than Bulls, 2 weeks with more Bears and one even. Many advisors correctly recognized the October low as the Real low. At the Day of the Dow low in December there were 41.5% Bulls and 39.6% Bears.
Couple of things I learned from this experience. Bullishness or Bearishness can persist for a long time and extreme readings need to be confirmed by other Technical indicators. The peak in Bearishness can also precede the actual top or bottom by a long time.
In the 1981-82 Bear Market the peak reading for Bears was 60.9% on 3/26/82, about 4 months before the actual market low in early August. By the time of the August lows the Bears were just over 40% and some advisors used the 20%
drop in Bears as evidence to stay Bearish. But not us, our TechnicalIndicators were screaming buy and we went 100% invested just before the lows.
At end of 1994, we had two weeks in a row of 59% Bears as part of a streak of 45 weeks in a row of more Bears than Bulls. We also had a record number of selling climaxes that month and, again, our Technical indicators were screaming Buy and we jumped in with both feet.
Now, we are looking at a picture where there have been more Bulls than Bears for 186 out of the last 189 weeks. Only three weeks with more Bears than Bulls were at the September lows. Wall $treet Week "Elves" at the start of
2001 asked their 10 participants to also give their opinion on what they thought NASDAQ was going to do in addition to what they thought the Dow was going to do. Not one of participants EVER rated the NASDAQ at Bearish and
Louis Rukeyser, the host of the show, sent the "Elves" on Vacation after the September lows.
In addition, Technical indicators, although starting to become Oversold, are still negative and we are also dealing with a Huge Number of Buying Climaxes and the worst Insider Readings since 1986. This insider indicator, by the
way, is looking for pretty good lows in July and October and a very strong end of the year, but is predicting downhill all the way for the first six months of the year.
At the end of last year, we said we thought that the high for 2002 would probably come in the first quarter and maybe even in January and that the low for 2002 would be below the 2001 lows. We now think the 2003 lows will be below 2002 and will be the 4th year in a row with lower yearly lows than
the year before. This said, we don't think this will be an end of the world market, that there will be lots of times and places to make money and that our experience will be a big help to you.
Although looking at the 1974 streak of 15 weeks in a row of 59%+ Bears, it is obvious that they were completely wrong on a short term basis. If you look at it another way. it was the ONLY time you could have bought the Dow under 700 in the last 40 years, so in a longer term view, a contrary view
was ultimately justified." 6/14/02 |
