Bankruptcy

The Markets?

By mcbride

As long time readers know, this author reads and subscribes to much of that produced by the folks at the ElliottWave.  (www.elliottwave.com — paid subscription required for many of thier newsletters) In their latest Financial Forecast, Short Term Update, they state that the markets are just starting their downward trend.  The bases for this prediction is, among other things, the almost euphoric optimism which has accompanied the recent market highs.  “Two weeks ago the percentage of bulls in the American Association of Individual Investors (AAII) survey surged to 57.6, which was the most extreme since January 2007. Last week the 30-day Daily Sentiment Index of traders rose to 87.3% bulls (trade-futures.com), the highest percentage since June 2007. This week, as the above chart shows, the percentage of bulls in the Investors Intelligence Advisors’ survey spiked to 56.2, the highest level of optimism since December 2007 (56.5). And mutual funds’ percentage of cash to assets stands at 3.5%, one basis point form an all-time record low percentage. These four major groups of investors ? individuals, traders, advisors and money managers ? have all reached levels of optimism that have not been achieved in years. We cannot stress strongly enough that an optimistic extreme in conjunction with a slowing rally is a recipe for a decline, potentially a significant one.

And, in what may be the ultimate sign of a broad, deep and shared optimism toward a continued market rise, General Motors’ initial public offering was expanded today by 31% to 478 million shares traded, a day after the underwriters boosted the offer price to as much as $33 per share. According to news stories, an overallotment and an offering of preferred shares could bump the total amount raised to $22.7 billion, which would make the IPO the largest in history, surpassing the recent Agbank of China IPO. The head of an automotive research firm was quoted as saying, ‘Even with high demand, they can’t go too high in terms of the price, and that’s why they’re offering more shares.’ When bullishness is so strong that there is no price too high to pay for a company that was once the bedrock of American manufacturing, odds are that the broader market trend has reached an exhaustion point.”

Again, this is not investment advice; yours truly is not tied to the Elliotttwave people, but I do find that they are saying things and have a perspective which no one else seems to share. For that reason only, they are interesting to read!  Michael

Full post as published by Texas Lawyer Blog on November 17, 2010 (boomark / email).