Why are investors so scared of the stock market?

I keep a unique price calculation which shows me what the mood of any market is and it is flashing now that we have 85% of the decline needed to create a major bottom in the stock market. But what is fascinating is that normally a drop of this indicator by the amount that it has dropped would normally happen if the market dropped 9%-15% and yet it has only dropped 3% from its peak reading. What does that mean? It means the price action in the market is making people scared. The market drops violently off of the highs which makes investors watching the market fear that it is the "top". Traders, advisors, watchers, commentators get the same feeling too from watching the market each day. The news is negative: Falling earnings, a weak economy, the Fed can't get the economy going, the darn election, the terrible candidates, the bankruptcies, the world tensions, the rising price of oil, the huge budget deficits.... and so on.

Major market bottoms happen when the indicator "RgMov" drops 20 points in the $DIA and the drop into September 2015 was -29.4 points (followed by a bounce of 19%) and the drop into February 2016 was 21.9 points (followed by a bounce of 19%).

I am not forecasting what the catalyst will be to a rally in prices here, but the obvious candidates are "earnings" and "election results".

Check out my other market forecasts in the SPX500, SPY, and DIA and see what comments you have. I do my best to provide unique insights that stem from extremes in sentiment as measured by the VIX index and a pattern that I have found that is reliable in that indicator, and from looking at the whole universe of supply and demand factors. I have also studied what happens when a new Fed Chairman steps in. Oddly enough, the market follows a similar pattern each time. I also consider margin debt since that has correlated to the market average price quite closely. I also look at EARNINGS RELEASES and find that the market clusters around those prices since that is the level where news hit the tape.

Time will tell.

Wishing you all well and success in trading-investing.

Tim

11:54AM EST 10/19/2016

Kommentar:

I find it interesting that AAII (Amer Assoc Of Indiv Investors) came out and reported that SENTIMENT IS AT ITS LOWEST IN YEARS when the same evidence was showing up in this indicator. This is the power of PRICE ACTION to generate the mood of the market. Reading a chart to understand psychology is what "pattern analysis" or "technical analysis" is all about. A good "RE-BRAND" of technical analysis could certainly be "PATTERN Analysis" (Just as "Behavioral Finance" is a "RE-BRAND" of Psychology).