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.

By MSN Money Partner Jun 3, 2014 12:22PM
Credit: © Carlo Allegri/Reuters
Caption: Trader Anthony Rinaldi is reflected on a screen as he works on the floor of the New York Stock Exchange on Monday in New YorkBy Mark Hulbert, MarketWatch

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

Jun 3, 2014 1:35PM

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?

Jun 3, 2014 1:55PM
Just be ready to make those adjustments as we head into the volatile Summer months. We're already seeing some fluctuations as the big banks & insurance companies try to forecast their projections. And huge factor in this is how much in premiums that are being paid into insurance companies  due to Obamacare. We're coming to the end of the 2nd quarter so we'll see how bad it could get. If it is bad, those obamacare premiums might double (not your subsidy though) and that means a rocky 3rd quarter. 

I'm not trying to be the 'prophet of doom" here, just being cautious. I don't trust any of the numbers coming out of the white house and neither should any of you.   
Jun 3, 2014 1:59PM

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?

Jun 3, 2014 2:19PM
The stock market is a huge, bloated, dead, rotting, foul smelling, whale carcass laying on the beach full of government blubber. It suffocated because its waste products backed up into its lungs. And it's the biggest government welfare program for the wealthy ever. It's exactly what the rich like best. Money created out of nowhere for doing nothing. That is why it exists.
Jun 3, 2014 1:44PM

Nothing last forever,  and its still the best return on anything else going on in this economy!!!


Jun 3, 2014 3:29PM
I like my beer cold, my TV loud and the msn homosexuals flaming !
Jun 3, 2014 3:12PM
Thank you SOOOO much for predicting a June Gloom & Doom.  The market always does the opposite of what you clowns say.  
Jun 3, 2014 3:02PM
What's next... poke you in the eye July? These warning (danger Will Robinson) articles are falling on ignorant greed-clogged ears. All indicators foretell of catastrophic failure-- no Economist degree needed to see. 
100% of the consumer-oriented marketplaces are stalemated. Retail can't get the MSRP and their own personnel can't buy anything at their suppressed pay rate. It looks pure clear and obvious that the 5% gaining in this manipulated "recovery" are the cancer killing everything else. Seems the real solution isn't rocket science, it's pest extermination. 
Jun 3, 2014 2:08PM
Pleeease, this is just profit taking and a little manipulation of the little guys. We'll be back to records in a day or two. 45 BILLION, zero interest...no way is this going to correct while the free money is flowing, relax and get it while you can.
Jun 3, 2014 2:43PM
Yup it is very possible, that MSN has contaminated MarketWatch....??
Jun 3, 2014 4:12PM
In 2005 Fed Chr Greenspan said there was a little froth in the housing mkt. He was blind to the leveraged debt at the banks due to his incompetence. He had Fannie and Freddie debt in his hands as well as bank balance sheets. Subprime debt crashed housing. Then after the housing crash the stk mkt crashes and the **** writes a book about irrational exuberance and makes himself a couple of million off his Trillion dollar mistakes. This is America, run by the rich and famous ie olargards. The stk mkt has run up from 6700 to 16,700 in 5yrs. Wall St and bankers get rich and the economy still has 14M out of work and another 14M in part time or Walmart jobs. Why would the mkt crash again, history 3yrs after the first great recession ie the depression was a big mkt crash. History....Dow 20,000 or Dow 10000. history says Dow 10000. This great recession will be labeled correctly as the 2nd great depression within 5yrs.
Jun 3, 2014 3:00PM

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.

Jun 3, 2014 6:27PM

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.

Jun 3, 2014 1:08PM
the narrow focus here leaves me confused ... i could give you a quick list of over a dozen major issues that should have investors "worried" to the point of scared ****less ...

just look back to october 2007 through march of 2009 - there was a massive "wall of worry" during that period, but it's difficult for the market to climb when the stones in that wall keep dropping and flattening investors day after day after day ...

we'll see .... there are plenty of solid-yield investments available whose walls will not collapse ..

Jun 3, 2014 6:25PM
Headline says;

What do you expect, Obama just fell on his face with all these scandals, the next scandal will reach the Storck Racket.
Jun 3, 2014 10:14PM
there's the fed to inspire utter optimism although there is really no need to be optimistic if things really what they are cut out to be.
Jun 3, 2014 2:36PM

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....;)

Jun 3, 2014 4:20PM
lol... the new normal the rich get richer and the poor get poorer. Same formula since 1776. Maybe Sarah Palin will save America she can see Russia from her house....?
Jun 3, 2014 6:34PM
You guys are all the same!! Doom and gloom!! and you're rarely right!! Scarey!!
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