Contrarian Perspective

Death of Equities, a contrarian perspective helpsWhen it comes to the markets, I believe you need to be thinking with a little bit of a contrarian perspective.  When  a lot of people are doing the same thing or talking about the same thing then “red flags” should go up in your mind.  One of the classic signals of the last 50 years was when BusinessWeek had their “The Death of Equities” cover of their magazine on August 13,1979.

When the psychology gets to the point where the magazines are putting it on the cover, then many times it means we are probably at or near an extreme.  On August 13, 1979, the Dow Jones Industrial Average (DJIA) was 875, 10 years later it was around 2700 and around the beginning of the year 2000 it had closed at 11,722.  One of the greatest bull markets of all time.

contrarian perspective

Bulls and Bears

By the way, why do we say bull and bear? Bull is used to describe markets that are trending up and bear is used to describe markets that are trending down. No one really knows for sure where these terms came from but they have been around for a long, long time.

Investopedia cites the following as one reason for the terms: “The terms “bear” and “bull” are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down.These actions were then related metaphorically to the movement of a market: if the trend was up, it was considered a bull market; if the trend was down, it was a bear market.”

It goes on to say… “because bears and bulls were widely considered to be opposites due to the once-popular blood sport of bull and bear fights, the term bull stands as the opposite of bears.”  For more info on the bull and bear fights read this article.

Why the Negative Psyche?

Ok, so back to BusinessWeek in August, 1979.  Why did they get so negative on the market?  Well the DJIA closed at a high of 989 at the beginning of 1966 and was sitting at 875 on August 13, 1979, 13 years later. It had basically gone sideways for 13 years, but with some wild swings. Inflation had been raging, averaging 6.5% since 1968. and the United States economy was not in good shape.

BusinessWeek said, “For better or for worse, then, the U.S. economy probably has to regard the death of equities as near-permanent condition—reversible some day, but not soon.”

You have to also realize the psyche of the time. When that article was written it was within weeks of the 50th anniversary of the 1929 top and rapidly approaching the anniversary of the 1929 crash.  There were plenty of doom and gloom books being written.

Bullish Sentiment Dies Hard

So where are we now? I believe that DJIA, SPX, NYA and RUT all peaked in May 2015. I believe the bull market phase from March 2009 is done. But bullish sentiment dies hard. And with every rally the bulls get excited and the bears start to doubt.  You need a contrarian point of view.

You have to have a longer term perspective on what the market is doing. I share that vision with my Insider Members.  Today’s video is a brief weekend market wrap version of what I share with the Insider Members. I look at the NYSE Composite Index (NYA), the Russell 2000 (RUT), two indicators and a few ETFs including Energy (XLE) and the Nasdaq Biotechnology (IBB).

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