Sentiment Speaks: Would You Rather Be Right Or Make Money?

by: Avi Gilburt

When should you sell?

Does the market present risk to investors?

Following exogenous causes will not likely make you money.

When should you sell?

I see many articles being published about the significant risks within our financial markets. And, most of those articles are written from the perspective that these risks “should” cause a market top. To this end, one recent article noted:

History shows you don't actually have to call the top because as Goldman noted this week, "selling after the first three months of the market peak would, on average, put an investor in the same position as one who sold equities three months before the peak"

Does the market present risk to investors?

But, here is the thing folks. Markets always have risk. The market had risks in 2009. Should we have sold then? The market had risks in 2011. Should we have sold then? The market had risks in 2015. Should we have sold then? And, the market has risk in 2017. Should we sell now? In other words, simply because there are risks in the market, does that mean we are within 3 months of a market top?

Yes, there is always risk in the financial markets. But, the thing about it is that these same article writers have been suggesting you sell not just within the last three months. Many of them have been consistently writing with an underlying theme suggesting you sell over the last 3 years or even more, citing many of the same risks inherent in the market.

Again, the market will ALWAYS have risk. That is the nature of the market. But, investors need an objective methodology to be able to determine where the larger rally structure will potentially top as compared to when we are simply in the heart of the major rally phase. Yet, most of these articles writers simply parrot the risks they read about in the market, and claim that it is time to head to the sidelines each week – some even several times a week – for the last several years.

As I have written before, as an investor, you will almost always lean toward a bearish bias of the equity market.

Sentiment Speaks: Why Are You So Bearish?

So, when many of you read articles that support your natural bearish bias, it strengthens your perspective that the market is certainly topping any day simply because others are able to point to risk within the market. Have you yet been introduced to the “wall of worry?”

Since January of 2016, many have been not only calling for the major market top, many have been looking for a market crash. Yet, we have looked at the market from a perspective that we are still within the heart of the major rally phase which will not likely slow until we attain the 2537-2611SPX region (which we have consistently published for the last 3 years). Ultimately, I still believe that the market can head towards the 2800-3000 region in the coming five years, but we will likely see a 15-20% correction begin within the next year or so before we see the final rally in the equity markets taking us toward that 3000 region, and the completion of the bull market which began in 2009.

Following exogenous causes will not likely make you money

As I have recently written in other articles, the geo-political and fundamental reasons being paraded before you have not had the effect upon the market that all these article writers have firmly believed they would. And, even though most disagree with my perspective, I think that anyone paying close attention to the market over the last several years and are willing to be honest with themselves will recognize that exogenous factors have not driven our stock market. Just look at the list of “reasons” so many have been expecting will cause the stock market to top:

Brexit – NOPE

Frexit – NOPE

Grexit - NOPE

Italian referendum - NOPE

Rise in interest rates - NOPE

Cessation of QE - NOPE

Terrorist attacks - NOPE

Crimea – NOPE

Trump – NOPE

Market not trading on fundamentals – NOPE

Low volatility – NOPE

Record high margin debt – NOPE

Hindenburg omens - NOPE

Syrian missile attack - NOPE

North Korea – NOPE

Yet, the market has clearly had other ideas. As you can see, none of these reasons have mattered, as the market has simply melted up towards our longer-term initial target of 2500SPX, which we pointed towards several years ago, despite much disbelief.

So, when someone says to those who have been wrong about their beliefs about the stock market “would you rather be right or would you rather make money,” I suggest you take a closer look at the question.

I believe the question is really presenting you with an opportunity to do a bit of introspection regarding the manner in which you make your determinations about where we are within the stock market cycle. The question is if you have been looking towards all those exogenous factors which have had no effect upon the market, which then caused you to be wrong about the market, or do you utilize another methodology which can provide you with a much better overall and accurate perspective of the stock market rally since 2009?

If you continue to analyze the markets through the lens of exogenous events and factors, and you have not yet recognized the folly in such perspective, then, yes, the question that should be asked of you is if you would rather be right or make money? Each of those exogenous factors present further risk to the market, so you are right about the risks. But, analyzing risk through such exogenous factors will usually not provide you with a money-making perspective, as the market will ignore those risks when we are still within the heart of a bull market rally.

So, for those that need the question explained in a clearer form, it would be better worded as “would you like to be right in recognizing the risks in the market, or would you rather make money in knowing when those risks will not have an effect upon the market?”

As I have noted so many times before, markets are not directed by exogenous events. Moreover, I have presented numerous market studies which support this perspective. Rather, markets are driven by investor sentiment. So, until you develop the tools to be able to interpret market sentiment as related to the overall structure of the stock market, being right will continue to be your focus, rather than making money.

The Market Pinball Wizard

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Special Announcement

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Housekeeping Matters

For those looking for accurate insight into various markets, including VIX/VXX, FOREX, Dow Jones, etc., I also HIGHLY suggest you read Michael Golembesky’s work on Seeking Alpha.

Lastly, it seems that Seeking Alpha has changed the way they tag articles. So, while my articles used to be sent out as an email to those that follow the metals complex, they are now only being sent out to those that have chosen to “follow” me. So, if you would like notification as to when my articles are published, please hit the button at the top to “follow” me. Thank you

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.