Here's something they don't teach you in Economics 101: Too many bulls can kill a rally.
Conversely, too many bears can stop a bear market. It sounds paradoxical, but it's true: When market sentiment gets to an extreme on either side -- pessimistic or optimistic -- more often than not, the trend is near its reversal.
"Extreme opinions, shared widely, constitute the single most reliable indicator of an impending change of direction for a market. If virtually everyone is thinking one way, they have already acted..."
Robert Prechter, The Elliott Wave Theorist, July 2006
Extreme sentiment is not a guarantee of a trend reversal -- no market indicator is. Yet it's worth paying attention to -- and at Elliott Wave International, we do.
Our February 8 Short Term Update told subscribers that "...measures of investor sentiment continue to rise toward the top end of prior ranges."
Please take a look at this chart from that issue:
Included in the "no bear" category was the man who runs the world's largest money management firm:
"Investors should have 100 percent of investments in equities...said Laurence D. Fink, chief executive officer of BlackRock Inc...."
Bloomberg, February 8
Sentiment is running so high that even the famous "Dr. Doom" has turned optimistic:
"...Nouriel Roubini, noted financial bear, turned bullish (through a surrogate), saying that 'the rally has legs.'"
Wall Street Journal, February 8
Another sign of "extreme opinions shared widely" was the exceptionally low cash levels of mutual funds:
"At 3.5%...the mutual fund cash-to-assets ratio is just .02 percent from the record low, meaning that money managers are so confident that the market will not crack that they hold very little cash in reserve."
The Elliott Wave Financial Forecast, January 2012
Stocks tanked on February 10, catching many optimistic investors off guard.
When you bundle The Elliott Wave Theorist, Financial Forecast and Short Term Update, you save $19 when compared to the regular cost of these services individually. That's a 24% savings!