Wednesday, April 14, 2010

America is back!

Here is the cover of the latest issue of Newsweek magazine. Does it have any significance for the contrarian trader?

In my book I emphasized that the goals of the contrarian trader are to identify stock market crowds as they form and to determine the point at which the crowd begins to disintegrate. I think this cover shows that the extreme bearish sentiment among stock market traders and investors that prevailed only 12 months ago has begun to lift. The bearish crowd of a year ago is well along the path to disintegration. And a bullish crowd may well be forming.

But if a bullish crowd is forming it still has a long way to go before its views dominate the U.S. stock market. This cover is one of the very first significant instances where main stream media are showing more optimism about the U.S. economy. I think economic optimism will eventually translate into stock market optimism (but note this cover doesn't mention the stock market explicitly).

So I conclude that if anything this cover is a buy signal for investors. It shows that a bullish stock market crowd is beginning to form but is still in its youthful stage. As the crowd matures stock prices will go higher. Near the bull market top I expect to see many more positive stories about the economy, and several stories about how well stock market investors are doing.


  1. Very observant Carl. Many other blogs have picked up on this, but with the opposite conclusion. They suggest fading America at this moment while you (I believe rightly so) state the bullish sentiment is no where near its zenith.

  2. Good stuff Carl.
    I'm about 1/4 of the way thru your book.
    Not really a page turner, but I am finding nuggets of philosophy that I believe are "on the mark"

  3. Carl,

    Thank you for sharing your thoughts. Could you clarify one thing?. In one of your previous articles, where Apple and Steve Jobs being mentioned on the cover of "Time" magazine, you said, it signals top in 4-6 months. Why the same logic does not apply here?

  4. Carl, Aneo asked why. If not, why not? Why is this time different?

  5. Dave,

    because in the case of AAPL the bullish crowd may already have been formed, which is not the case for the stock market. i think this was Carl`s reasoning and its clear from the text.

    it is not so clear though if you want to believe the market is manipulated, that the USA is doomed etc

  6. I am one of those ppl. I have sat on cash for the last couple of years and prepared for the worst. I covered my last short last week and have been buying like crazy. I still have 97% cash ready to buy when I see a correction.

    So there likely to be more like me coming out to buy as the market going up.

  7. Edwin, if you have been buying like crazy and still have 97% cash then you are a true bear!

  8. Adrian,

    The last buy and hold stock I sold was GE at $59.54 in 2000. I was extremely lucky. Paid off all debts and was ready for the armageddemon. I held CDs and treasuries since then. With CDs at zero return, I am going back in the market based on my agreement with Carl after I read his book.

    The public is still hurting and very very skeptical about the market. I believe SPX 1,320 is very possible.

    Yes. I still have 97% money in cash and I am buying again today.

  9. Great work Carl. I really appreciate your views on the market.

  10. Bill Gross (the smart money??) is quietly getting ready to sell his value equity fund. It is another buy signal. If and when bonds begin to fall, Gross and the Wall Street apparatus will usher their followers to buy stocks accordingly. We are at the early stage of a significant rise,, waiting for all the Joe Sixpacks to get on-board.

  11. I have a plan to buy and add to my position. Today I bought MRK( a beautiful HAMMER and a bullish Full Stochastics cross from oversold territory) and more DBA while day traders get whipsawed and the bears are disbelieving the better than expected Leading Indicators.

    The bulls won today.

    I will let the experts like Carl to call the top and bottom.

  12. In hindsight you called it bullish which was right but instead of saying it was a sell signal (in the short term) you said it was a buying signal.
    That turned out to be the peak of that particular bullish trend and the market declined for months after that article.

    Good spot but wrong call there I think its fair to say?