Nothing better illustrates how vivid an impression Tuesday made on ordinary Janes and Joes than the marked change in their sentiment as registered by the American Association of Individual Investors: to 39.6% bearish and 36.6% bullish, from 53.9% bullish and 22.3% bearish the previous week.
By contrast, the Wall Street seers remain stoutly upbeat. The conventional view (wisdom is too fine a word for it) among strategists of various shapes, sizes and dispositions is that the market was obviously overheated and primed for a shakeout.
They didn't bother to offer it, but the implicit excuse for not sounding the tocsin before the big break was they were too busy crooning on about Goldilocks, the global savings glut and the sea of liquidity as guarantors of the Dow climbing to (insert here the wild number that makes you happy). In any case, no need to fret.
For the markets getting creamed is a healthy thing. It shakes out the froth (that's you they're talking about) and sets the stage for another, bigger and stronger dash upward. So goes the post-meltdown mantra of the chronic bulls.
The almost universal conviction is that Tuesday's plunge was not the start of a full-fledged bear market. Even the savviest sage we know, who has been unequivocally skeptical for a spell now, thinks the odds are against it being the start of a bear market. He reckons there's one more big move up likely and, after that, perhaps a few month hence, stock prices will begin their journey to the nether depths.
Perhaps. But we wonder. That virtually everyone agrees that Tuesday wasn't the start of a bear market strikes us as more than reason enough to suspect it just might be.
That's pretty consistent with my view: More volatility, rallies towards prior peaks that fail, leading to deeply oversold conditions, new lows and eventually, new highs.
Note also that Barron's "Up and Down Wall Street" column picks up the Albert Edwards quote we highlighted last month (via Bill King) . . .
Bear Market, Anyone?
Barron's, March 5, 2007
Up and Down Wall Street