Investors Getting Scared Even Though This Is Still A Bull Market - Mike Swanson (08/21/2013)

People are getting scared about the stock market. I've been getting emails the past few days from people wanting to know if they should take hedges to protect themselves if the market falls more. A lot of people are watching CNBC and have become convinced that the "QE tapering" is some meaningful thing even though again and again I've been saying that it means absolutely nothing in the big picture. It's all a show.

People who believe that the Fed is going to stop printing money are either smoking dope or listening to CNBC's Steve Liesman and believing what he says is real.

What is really happening is that the S&P 500 has fallen over the past few weeks and people are reacting to the market drop.

When markets go up people get all bullish and as everyone buys in a market tops out. That is essentially what happened in May.

In bear markets people believe all the way down and get convinced that every rally is the start of a new bull market. People get hopeful.

But in bull markets when a market drops short-term players get shaken out and people get scared. Bullish sentiment fades away.

That is what is happening now. According to today's release of the weekly Investors Intelligence survey the number of people bullish on the market is now 43.3%. That's a big drop from the 52.10% reading seen in the week of July 16. It's a reading similar to that seen at the last low made in June.

That doesn't mean the market can't fall a bit more or that the number of people bearish on the market can't grow. In years past the number of bulls has fallen below 40% at important bottoms at times. But what it does mean is that when it comes to sentiment people are getting more scared about the market.

In bear markets that takes a long time to happen. This quick shift in sentiment is exactly what you see in continued bull markets.

So I do still believe we are in a bull market. This pullback does not concern me at all. One day we'll be in a bear market, but we aren't in one now.

In fact this market pullback is completely logical.

In November the S&P 500 was at 1350. It got to 1709 last month. That's a 26% gain in eight months. That's a huge return that simply cannot keep going on at that pace. If it did the S&P 500 would go to 10,000 in a few years.

Look at the chart!

See how steep the rate of advance is! So duh - an advance like that is not going to last forever. So it ended.

That's why the market has pulled back the past few weeks. It has only fallen 4.7% off of its high.

That's a little drop, but despite the fact that it is so small people are in a panic now. It's crazy. This is how fickle US investors are. They think they are entitled to see the stock market go up month after month for them and if it doesn't they look for reasons to explain why they are not getting rich. People need to calm down. They pay too much attention to every hourly gyration in the market and rarely step back and look at the big picture. When you look at the above chart it's obvious that this advance in the first half of the year was going to come to an end. The market was not going to go up at a forty-five degree angle forever.

The S&P 500 has support at 1600, the point of its 150-day moving average. It wouldn't surprise me if it went there and it wouldn't be a big deal if it does. Pauses and pullbacks are a natural part of all bull markets.



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