Financial Sense   Home  l  Market Monitor  l  Market WrapUp  l  Storm Watch  l  About Us  l  Contact Us

CONSENSUS

MARKETVIEWS.TV GUEST CONSENSUS (10-9-05)

BEARISH

(15) BULLS; (24) BEARS; (11) NEUTRAL

Although the Consensus is currently bearish, the real important development is that it had been "Neutral" for 79 out of the last 122 trading days. Why is it significant? It is significant because our guest list was constructed with a specific design and goal in mind. All guests are "objective disciplinarians," in other words their position on the market is derived mainly from a specific methodology that has proven itself over time, and takes into account very little, if none at all, qualitative analysis. The reason for that, is because a) we wanted to assure consistency, and b) by knowing the specific methodology employed by each guest, we avoided having one "school of thought" being over-represented in the poll, which would have compromised its integrity and usefulness as a tool.

It is quite rare for so many different methodologies to be giving "neutral" signals for so long because it implies that the market itself has been giving a very contradicting account of itself during that period. The fact that many different methodologies are unable to render a clear cut signal means that the market's "internal contradiction" is for real. Usually, markets undergo such a period prior to a major change. One thing that we must keep in mind is this; periods of contradiction do not mean that a "change" will certainly take place; what they do mean is that the odds are in favor of change, and it will take something extraordinary, and exogenous, in order to reverse the  dynamics that are currently present in the market.

In conclusion, my interpretation of the Consensus' reading the past 4 months is that "mentally" investors ought to prepare themselves for possibly a dramatic change in the market's behavior over the next 4-6 months.

You can follow the Consensus regularly by visiting this page; it is open to the public:

Our own technical work also seems to confirm the conclusions derived from the Consensus, which is the reason we wrote the following in our weekly analysis (From the Weekly Report by Aegean Capital Group, Inc. All rights reserved, reproduction without authorization is strictly prohibited):

Summary

Last week we said: "The "relief rally" we talked about last week finally came on Thursday. Does it have any staying power? Notice that the Quantifiers haven't turned positive, and the McClellan Oscillators haven't overcome the 25 level; however, both are rising. The implication is that there is more room to the upside, but it is too early to assume that the "relief rally" is going to last. In fact, given the data that we have now, the odds favor an early termination."

This week: As we had expected, the previous week's attempt to rally failed miserably. The indices declined further reaching price support levels, while most technical indicators reached oversold levels. Consequently, a "bounce" is quite natural at this point. However, the real importance of the current combination of price levels and market internals suggest that we are once again at the demarcation point between the end of a bull market and the beginning of a bear one. In bull markets, under the current circumstances one can expect the bounce to carry a bit further to be followed by another decline, during which the internals improve, thus providing non-confirmation of the decline, resulting in an upside reversal and the bull cycle goes on. On the other hand, at the beginning of bear markets, the bounce that comes as a result of the current combination of price levels and  market internals is quite sharp and violent, exceeding even the expectations of the bulls, which is followed by an abrupt and even sharper and more violent decline, exceeding even the expectations of the bears, OR, the bounce fails almost immediately and it is followed by a another decline during which the internals deteriorate even further, thus, providing confirmation of the price action and forewarning of more to come.

The human temptation is to try to get ahead of the market and determine in advance what the ultimate outcome is going to be, thereby, proving to ourselves and to others our "superior" understanding of the markets and its inner workings! Although we do have our own beliefs and suspicions, our approach has been to act on what the market is telling us, opposed to what we think it is telling us. Right now all it is telling is to watch out for a possible change in character, but there is NO evidence that such change has taken place. According to our indicators (see table below), we have suggested that the preferable position is in cash, and thus, at this point we can afford the luxury of waiting on the market to show us its true colors!

In summary, for next week we have to expect the bounce to carry a bit further and then another decline. It is that decline that will give us important information about the character of the market, and whether the bull cycle that started in March of 2003 is still in effect, or it has come to an end.

The Transportation Index supports the bullish view due to its chart pattern; on the other hand, the Volatility Indices are at channel resistance. A break-out above a two-year trend line would suggest a change in character at least to some degree. The point is, if you look you can find evidence to support your own bias, which ultimately may turn out to be wrong. The key to long-term success in the markets is to recognize those circumstances when risk is elevated and avoid the human temptation to be a "hero" with your money! If you end up poor by trying to be a hero, you may get some sympathy, but you will never get invited to parties, and you won't get the girl at the end of movie (or, the guy!)

Ike Iossif

Home  l  Broadcast  l  Market Monitor  l  Storm Watch  l  Sitemap  l  About Us  l  Contact Us