You can judge market sentiment in more ways than one. For example, cover pages of popular periodicals can give you a glimpse of the prevailing mood in the market. When a financial trend is so strong, or in force for so long -- or both -- that it makes the cover, the trend is usually fully acted upon, and therefore close to a reversal.
Here at Elliott wave International, we've often used this phenomenon to help us gauge how extreme market sentiment has become -- and therefore, how close is the market in question to a reversal.
Here are some examples:
2000: The Internet Bubble. Our January 2000 Elliott Wave Financial Forecast makes this observation:
"The internet accounted for more than one-third of Businessweek's 1999 covers, [all of which suggest] 'This is just the beginning. There is a New Economy out there.' Plus Time Magazine's cover 'Get RICH.Com.' The prominence of its recent veneration suggests that a flight from technology may be just around the corner."
2005: The Real Estate Bubble. Our July 2005 Elliott Wave Financial Forecast presented this chart of REIT's since 2002 and wrote:
"Time Magazine's 'Home $weet Home' cover focuses on the most ubiquitous holding in the average American's investment portfolios. Now that its editors are all on board, it is the most dangerous, too."
2007: The China Bubble. The February 2007 Elliott Wave Financial Forecast presented this chart and wrote:
"With Time Magazine's 'Dawn of a New Dynasty' cover, the blow off is likely in its very latter stages. This is a particularly appropriate endpoint for the bull market in Chinese shares."
...Flash ahead to today.
On February 13, a popular weekly financial newspaper ran on its cover the following headline: "Dow 15,000." What should you make of it?
By itself, no market indicator is all-powerful. You have to look at the rest of the evidence before making a conclusion if market sentiment has indeed reached an extreme.
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