Bulls/Bears at market turning points PDF Print E-mail
Written by Travis Morien   
A public opinion poll is no substitute for thought. - Warren Buffett

 

Advisory sentiment

Another form of professional timing relates to bullish/bearish sentiments. Investors Intelligence is a newsletter that compiles the views of the majority of advisory newsletters forecasts. At the end of 1996 they compiled the following table:

Turning point
 		 Bulls
%		 Bears
%		 Correction
%		 S&P500 return until
the next turning point
9 Feb 1966 34.9 11.9 53.2 -22.2
7 Oct 1966 25.4 52.5 22.1 48.1
28 Nov 1968 40.9 27.3 31.8 -36.1
26 May 1970 29.0 56.5 14.5 73.5
11 Jan 1973 61.1 15.3 23.6 -48.2
3 Oct 1974 40.0 60.0 0.0 73.1
21 Sep 1976 60.3 11.8 27.9 -19.4
6 Mar 1978 35.5 61.8 2.7 61.7
28 Nov 1980 34.8 37.1 28.1 -27.1
12 Aug 1982 39.0 41.0 20.0 228.8
25 Aug 1987 59.8 17.2 23.0 -33.5
4 Dec 1987 28.0 45.8 26.2 64.8
16 Jul 1990 45.2 34.7 20.1 -20.0
Oct 11 1990 41.4 50.0 8.6 150*
* To 31 Dec 1996

Clearly if you are going to make any money out of "expert forecasts" the way to go is to be a contrarian - do the opposite - but in practice this will be very difficult psychologically. At each of the turning points the experts had very good reason to feel the way they did. Markets will reach their high point at the very moment when the news is the most optimistic, and fall to the very bottom when news is at its worst.

The market will not start to recover only when news improves, by the time it is quite clear that the economy is on the mend the stock market will already be 30% off its lows, during the previous few months the consensus will have been that the market was going through a false rally or "bull trap". The bulk of economic data as well as "technical" factors all point in the same direction at a market turning point, which just happens to be the time when the market begins doing the exact opposite.

 
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