Mark Hulbert Says March 17th Probably Stock Market Bottom ~ The Risk Averse Alert

Monday, April 07, 2008

Mark Hulbert Says March 17th Probably Stock Market Bottom


Mark Hulbert, editor of The Hulbert Financial Digest, appeared this Morning on CNBC's Squawk Box and revealed the investment advisory newsletters his service tracks are quite bearish and predominantly pessimistic about the stock market's prospects. Hulbert reports that a composite of newsletter editors was recommending their readers have 25% of their investment capital short the stock market at the March 17th low. Contrarily, these same editors were recommending a 7-8% short exposure at the January 25th low. Hulbert states this increase in bearishness, January to March, indicates that advisers have thrown in the towel. So, taking a contrarian point of view, Hulbert indicates chances are the stock market's multi-month decline has seen its low.

The Hulbert Financial Digest has tracked investment advisory newsletters for the past 28 years. Thus, Mark Hulbert can claim a wealth of data to show most newsletter editors are wrong at market turning points. During his CNBC interview with Joe Kernan Hulbert additionally claims most investment advisers are wrong at market turning points, as are most investors.

I wonder... Among the minority of bullish advisers with whom I find company, how many are forecasting a stock market melt-up sometime over the months immediately ahead? Probably no more than were bearish, like me, in January 2000 and bullish, like I was, in February 2003.

I wanted to present today's CNBC Squawk Box interview with Mark Hulbert because it substantiates the 60% probability I have given to March 17th marking the bottom of the stock market's multi-month decline beginning last October. I do not suppose the case Hulbert makes, though, discounts the possibility I laid out Friday for a final turn lower before the stock market launches higher with a vengeance, taking major indexes well beyond peaks set last October. It might be helpful if you read a piece Hulbert wrote in the New York Times on January 27, 2008 titled, "An Ear to the Ground on Stocks." You can decide for yourself whether increasing bearishness among investment newsletter editors since January makes unlikely a break below March 17th's low...

...Or, whether increasing pessimism might make more likely "a volume spike reversal" such as I suggested Friday is possible were the stock market to fall still further before completing its multi-month decline.


OEX 5-min

Today's RSI collapse is curious (notwithstanding divergences occurring over the last two hours of trading). The degree to which RSI fell to a sell-side strength extreme seems to suggest a follow-through burst to 650 (or higher) probably is not the S&P 100's present path of least resistance. In fact, taking Hulbert's contrarian view into account, a fall to the low end of the narrow channel I presented last Thursday (4/3) might be in store.


$OEX

Should such a move lower occur, a bounce might follow, after which a test of March 17th's low could subsequently unfold.

That's a lot of speculating in a single sentence. All told, though, nothing new was spoken. Indeed, on Friday, March 28th I suggested, "the stock market probably will not trade outside the range it has been stuck in for the past two and a half months over much of the month of April."

If Mark Hulbert were me, he'd probably agree...


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1 comments:

retirement investment advisor said...

Tom,

I did s study using AAII's investor sentiment survey data and the conclusion is same. Here is the study - Investor Sentiment and Stock Market Returns.