Why a June market swoon seems likely
If the recent rally isn't close to being over, it will have to be based on something other than a strong wall of worry.
Should you get ready for a June swoon?
It wouldn't be a bad idea. The stock market's sentiment foundation is weaker now than it's been in several months.
That foundation's deterioration over the past month has been particularly stark. You may recall that, at the beginning of May, I reported that there was a surprising amount of skepticism, if not outright bearishness, among the short-term market timers I monitor and that, on contrarian grounds, we therefore "should see higher market prices during the next month or so." The Standard & Poor's 500 Index ($INX) is 3 percent higher than where it stood then.
Today, in contrast, that so-called wall of worry has given way to complacency and hope -- moods that typically are not conducive to a strongly rising market.
Consider the average recommended equity exposure among short-term stock-market participants who focus on timing swings in the Nasdaq Composite Index ($COMPX), as measured by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI.
This is perhaps the most sensitive of the sentiment indexes that the Hulbert Financial Digest maintains, since the Nasdaq market is itself quite sensitive to changes in investor mood.
A month ago, the HNNSI stood at 6 percent. Today it's at 43.8 percent. So the past month has witnessed a marked move toward the bullish bandwagon.
Even more worrisome is another sentiment index that I calculate. This one is based on the average exposure level among all short-term market timers the Hulbert Financial Digest monitors, rather than just those who focus on the Nasdaq market. This broader-based sentiment index now stands at 61.7 percent. That's getting close to its highest level of the year.
To be sure, these two sentiment indexes are not suggesting that we're at "irrational exuberance" levels. But they do suggest that we're closer to that end of the sentiment spectrum than to "blood is running in the streets" skepticism.
Perhaps the best you can say right now is that the sentiment picture is neutral from a contrarian point of view. At worst, it's slightly bearish for stocks.
There's no way of knowing, of course, how much of the stock market’s recent strength was being fueled by sentiment. But it is safe to say that, if the recent rally isn't close to being over, it will have to be based on something other than a strong wall of worry.
More from MarketWatch
Re-Tog posted today, "It's easy to call for a downturn after or near a long term Bull Market, anyone can...I'll do it right now, a Bearish downturn...And then call for an up trending Bull after that...Maybe in a few months or a year or so, I CAN BE JUDGED AS A GURU...??"
Well it's almost funny how easy it is for folks to quickly forget just how we ended up in a Great Recession. What's even worse, the current Denial and Ignorance of the current Trajectory from as of now, 3 central banks printing to tune of almost Nearly $10 Trillion and counting. This is hardly about being considered a GURU and far more about addressing issues that have clearly never been Fixed. Seems most have no desire to fix anything to protect our future. Things like the Stolen Funds from the Social Security and Medicare Trust Funds. The issue of denying Seniors Interest Income just to prop of Global Stock Markets with Bogus Crack-Dollars.
Posters are always talking daily about how everyone ought to take responsibility for their Life/actions and thus make better choices. Funny how some of those same posters are in apparent denial to the National Debt Issues along with a problem of never fixing the Scale and Scope of over $700Trillion in Scam Banking Derivatives. Folks seem to forget about that 800 pound Gorilla.
I could care less about predicting the Day a Bull or Bear Markets begins. I care about fixing this Country before we get in Way Too Deep. By the way, we are already pretty darn Deep in this BS. Seems just about everyone else is on the ME, Myself, and I thing.
Guess that's why Global Debt has risen 40% since the Great Recession. We have done little to nothing to solve anything other then revert Right Back to Ignorance, Denial, and corruption of the Past. And that was just a few shorts years ago. There is always a Major Price for that. That PRICE always keeps getting BIGGER and farther reaching. So when the next Crisis becomes self evident to everyone, and it will, what will the Central Bankers due for Encore. Print another $10Trilion in Fake Money? Really?
Well someone beat me to it...
"In May we are suppose to walk Away..."
Now we have "a June swoon"...?
I'm guessing but, I think they might say "July will be a Pie in the Sky"...
Mark Hulbert, is getting in Anthony Mircat's camp, so I'm guessing they can come up with something?
Nothing last forever, and its still the best return on anything else going on in this economy!!!
Re-Tog, posts, "As far as Central Bank injections, I hardly pay much attention to what Europe is doing anymore. Not sure if I even believe what China, may or may not be doing."And don't care about Japan."
Well that's disturbing seeing how likely most of the Companies you and I invest in depend on Global World Growth. China by some measures is predicted to become the World's largest Economy this Year. Japan is about the Fourth Largest Economy. Both Japan and China are huge Holders are US Debt. If they turn for the worse, so do we.
"The U.S. FED has cut their bond buying in about half and are weaning us off QE..."
How can they be weaning us off QE to Infinity when their Balance sheet has grown from nothing to nearly $5Trillion. They are not planning to Clear their Balance sheet, just keep turning it over with the Option to add much more, That's hardly ending anything.
"Many "indicators" say the U.S. is healing in Recovery...with more to go.
And investors (big money) are flocking or taking a great interest in the U.S.'s Recovery..."
Auto Sales have come in Robust to say the least. But can it hold. Boeing and the Airlines are definitely have a great Year along with Disney. However, a ton of Huge Companies reported far then stellar results. The 1st Quarter and 2nd for GDP might balance out but there is Serious Doubts after that.
"In case you missed it, which I don't believe you have..? THOSE are all GOOD SIGNS."
Risk levels in stock have rarely stopped anyone from speculating within a Given Time Frame. We all have methods that we all feel protect us to a degree. However, the longer a Market built more on Crack-Dollars aka Pie in the Sky then real organic Fundamentals, the Risks and thus Fall out will grow in proportion. Bulls make money, Bears make money, but rest assured, Pigs will get slaughtered.
There are three things I know absolutely for sure,
#1 The market will go up.
#2 The market will go down.
#3 And there are absolutely no absolutes.
I don't know what a "Zillion Dollars" is, but I would like some of that action.
Even if it was just "fake money" the paper ought to be worth a lot....;)
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.