Friday, October 25, 2013

U.S. Stocks: The Bears Have Left The Building

Just a quick visual walk through today on the euphoria/danger that currently exists in the U.S. stock market before you get back to the mainstream news and every person around you who will provide a steady stream of reasons why stocks are undervalued and headed much higher.

The following chart from Bespoke shows that the bears have officially left the building. Even if someone wants to proclaim they are not bullish, at this point in the rally no one will dare say that they believe stocks could actually fall. Click for larger image:


This helps provide context on where we are in the investor psychology cycle. The charts below from Street Talk Live map it out:


Now we can layer this understanding on the ebbs and flows of the secular bear market over the past 18 years:


At the end of a secular bear market rally the public re-enters the stock market, finally believing that stocks will rise forever and forgetting how they were slaughtered the last time.


Meanwhile on Wall Street they are not only all in, they are fully laced with margin.


Where will U.S. stocks go in today's trading session? Probably higher.

Where will they go in Monday's trading session? Probably higher.

Stocks becoming more expensive and overvalued in relation to their underlying fundamentals only makes those in the market more excited to purchase. This simple psychological flaw that people possess is how the few that understand this have made the lion's share of the profit in the market over time.

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