Bear Markets equate to long term opportuity

 

The masters of deception AKA experts take delight in concocting all sorts of fables as to how the markets are destined to crash. They go on to state the markets will remain in a downtrend for years to come. Let’s stop right there, the only thing that has crashed is their ego, and the only downtrend insight is their dismal forecasting record.

From a Mass Psychology perspective, bear markets are nothing but buying opportunities as they will spawn the next bull market.  When you hear these nutcases posing as experts stating that the financial world is going to collapse, ignore the noise and focus on the facts. In almost every instance, these chaps are only predicting their demise.  History indicates that markets trend upwards for much longer periods then they trend downwards.  Additionally had an investor purchased top rated companies when the masses were dumping their stock during the so-called crash phase, they would have made a fortune over the years. To be fair one does not jump in as soon as the masses start to sell or buy as soon as the masses turn bullish.   One looks for extreme shifts in emotion; when the crowd is euphoric it’s best to take profits and sit on the sidelines; if you are aggressive, you can short the markets. When the panic readings soar to the stratosphere, and there is a talk that the outlook can only worsen then the prudent call of action is to start establishing positions in top-rated companies.

Every time the Markets sell off these lunatics posing as experts start raving about the next crash and a plethora of articles are frantically penned as the experts are desperately hoping that things will pan out differently. Is this not a clear example of insanity in action; regurgitating the same rubbish in the hopes that the outcome will suddenly change.  One thing these guys are good at is writing fiction, and it makes you wonder why they don’t make a career out of that as they are pretty darn good at it; reality seems to elude them.

Since the inception of this bull market we have repeatedly stated that until the sentiment turns decidedly bullish and for an extended period, this bull market is unlikely to end. In Jan the bullish sentiment soared past the 60% for the 1^st time in years. This could have marked the end of the bull, but the markets let out a massive dose of steam over a very short period and negative sentiment soared. Bullish sentiment has continued to trend downwards from its high of 60 in Jan 2018.  Therefore, for now, a crash has to be ruled out, but the markets will continue trending in a wide range until they moved to an oversold state.

Market sentiment is far from bullish

The gauges below clearly indicate that the masses are far from bullish and one of the founding principles of mass psychology is that you never take a position against the masses unless sentiment readings hit the extreme zone.

Conclusion 

The markets are still overbought so they are likely to trade in a wide range. Volatility will be a big issue; expect to see wide swings of 200-400 a day and possibly one to two 1000 points swings in the Dow before the Markets bottom. This action should continue until the markets move into the oversold ranges; after that, the market will be poised to trade higher. we would not be surprised if the market is trading at new highs by year end.

Mass Psychology for Dummies

The smart and early bird gets the worm the late bird the bullet .  Sol Palha

Mass psychology is akin to going to the buffet; most people go to a buffet and choose the first morsels of food their eyes land on. The wise move is to wait and slowly scour the buffet for the owners usually put the tastiest morsels in the corner.  Patience, knowledge and understanding of how the mass mindset operates can yield great results both in and out of the financial markets.  It’s not what you know that helps you but what you think you know that hurts you.

The concept of a buffet is straightforward; all the worst food is served at these all you can eat buffets; offer lots of quantity but very little quality. The model works spectacularly as the masses think they are getting a bargain while in reality, they are causing havoc to their digestive systems.

If one examines the buffet with patience, you will find that the salad bar is one of the few places where you can find something really tasty and healthy at the same time.  Pay a little more attention, and you will find a cook grilling sirloin steaks and a small but decent selection of cooked vegetables.  Over 90% of the individuals opt for the junk food, which usually consists of one of the following; hamburgers, fried chicken, French fries, pizza, fried chicken wings, fried chicken nuggets etc.

How this relates to investing in the markets

Most Individual will try to load their plates with as much food as they can (mostly with junk in the hopes of getting a bang for their buck. What’s the mistake here? They are sacrificing quality for quantity. If you want to win in the markets, you need to focus on quality, not quantity.

In the same way, individuals enter the market with the hope that if they spread their money all over the place, they will hit a home run eventually.  Who do they go to for advice? Financial experts who whose knowledge of the markets is questionable at best; for example CNBC, CNN, and other investment related sites.

These individuals invest their hard earned money without taking the time to familiarise themselves with the landscape.  They are walking into a field that is loaded with mines, and they expect to strike it big utilising this time-tested concept that history proves has never worked.   Failure is all but guaranteed.

Some individuals think that by hiring a money manager, they will escape the pitfalls of investing.  In general, if these money managers were so good, they would be managing their money instead of trying to fool others into thinking they know what they are doing. Why not make a fortune for yourself instead charging others a fortune to lose their money. Riches come to those that seek it and poverty to those that chase it.   Remember this; one should buy when there is blood in the streets and sell when the masses are euphoric.

Let’s apply the buffet principle to investing

Selection

 Scour the marketplace for good plays, avoid those stocks that appear to look good and that are being hyped by the media.  For example, focus on companies that are strong but are being treated badly by the markets. Every stock pulls back and if the company has a viable product, the best time to buy shares is when the masses are ignoring it.

Patience

 Don’t just buy a company because the experts are stating its going to keep trending higher; when everyone is buying caution is warranted. Wait for the stock to pullback or look for other strong companies that have fallen out of favour.    Do your research or find a reputable company to help you (this is getting harder and harder to find these days).  Even if you find a reputable company, it always pays to check the stocks that are being recommended to make sure they meet your investment criteria.  Patience is a virtue that the astute investor uses to build a fortune.

Discipline

Once you find a winning strategy,  stick with it; if you keep changing your strategy, the outcome will be far from pleasant. 

Conclusion

The first thing you can do to help you overcome the built-in secret desire to lose syndrome would be to determine the trend. At the tactical investor, we do this via the Trend Indicator,  a powerful tool that combines mass psychology with the finest aspects of technical analysis to predict trend changes in advance of the event.

One has to remember that the mass mindset is set on self-destruct mode, especially when it comes to investing.  For some strange reasons, the masses seem to thrive on misery and pain, or they know no better; the outcome, either way, is the same.  How else can one account for the fact that 90% of market participants lose money over the long run?

Mass psychology for it shows you to be real contrarian and not just a fashion contrarian. Most contrarians fall under the category of “fashion contrarians”; they seem to think it’s cool to call themselves contrarians without knowing what it entails to be a contrarian.

This is just a brief look at the field of mass psychology To start you have to drive the following principles home

1. Never buy when the crowd is euphoric
2. Load up when the crowd is panicking and fleeing for the hills; this is the best time to find excellent long-term plays.
3. Spend time identifying stocks you like; when opportunity knocks you will be ready to buy
4. Paper trade first for in theory anything sounds easy and after you feel that you have mastered things; start with small amounts of money. Theory and reality are not the same things and its best to start small as you will need to be ready to deal with unforeseen obstacles. For example, the market might drop lower than you expected and the stock price might drop before it bottoms out.