Technically Speaking: Despite Correction, Investors Are Exuberant

Despite the recent correction in the markets, leading to a hedge fund imploding, investors remain exuberant. The hopes for more stimulus, government spending, and Fed liquidity displace fears of a correction.

Before we get into the technical review of the markets, I thought Jason Zweig summed up the current environment well.

“This isn’t a bull market or a bear market. It’s a know-nothing market.

Bragging rights used to go to those investors who worked the hardest at learning the most. Now the glory often goes to those who know the least and don’t even care.

‘I don’t know what the f— I’m doing,’ a young man said in a TikTok video in January. ‘I just know I’m making money.’ He added that he’d been trading stocks for only three days, but ‘just like that, made $300 for the day.’ In the next few weeks that young man, Danny Tran, racked up roughly 500,000 followers on TikTok.”

That is the new investing world we live in. A world where individuals are getting investing “expertise” from young individuals on social media with huge followings. It is effectively the “blind leading the blind.”

Is there a risk to investing?Absolutely.

But investors have been trained by the Federal Reserve to “buy the dips.” Importantly, even as valuations stretch suggesting lower future returns, investors continue to expect above-average results.Such was the result of a recent Investopedia investor poll with readings expecting 5% or more and stocks and ETF’s over other asset classes.

(Click on image to enlarge)

correction investors exuberant, #Technically Speaking: Despite Correction, Investors Are Exuberant

In other words, it’s a “risk-on” market, baby!

 

Bull Markets Forgive Bad Mistakes

As Howard Marks noted in a recent Bloomberg interview:

“Fear of missing out has taken over from the fear of losing money. If people are risk-tolerant and afraid of being out of the market, they buy aggressively, in which case you can’t find any bargains. That’s where we are now. That’s what the Fed engineered by putting rates at zero.”

As is often the case, investors tend to pile into markets when the risk versus reward is out of their favor. However, during a raging bull market, investors are forgiven for buying fundamentally unsound companies. Currently, the number of “unprofitable” companies is at the highest level since the dot.com era.

correction investors exuberant, #Technically Speaking: Despite Correction, Investors Are Exuberant

For now, that hasn’t mattered as the number of companies trading above their 200-dma is at some of the highest levels on record as well. When virtually every stock in an index is in a bullish trend, it is usually a warning sign.

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