The wisdom of Wall Street has it that the market never hits bottom until the last bull capitulates. In other words, there is no hope of things turning around until everyone has given up hope of things turning around.
If this is true, then this morning’s Wall Street Journal lead story ought to give us hope, because it reports a bleak absence of hope.
“Investors around the globe appeared to be giving up hope and girding for a prolonged recession.”
I thought it’s been crystal clear since last September, if not before, that the “prolonged recession” scenario was the best case. But maybe it’s been looking different to the folks on Wall Street. Maybe that’s why they’re still in trouble?
“Traders said the latest downdraft broadly reflected a deepening sense of gloom among investors. Gone are the days where the mantra among investors was to “buy the dips,” on the belief that when stock prices fall, they’re likely to rebound. Instead, the opposite sentiment has taken hold.
“It’s like an unending nightmare,” says Kent Engelke, managing director at Capital Securities Management in Glen Allen, Va.
So it sounds like the last of the bulls has thrown in the towel. Which ought to mean that we’re at or close to a market bottom.
But here is why this particular strand of Wall Street wisdom always seemed problematic to me. If it were accurate, then some portion of the market would follow it — in other words, some group of investors would always see the general rout and think, “Aha! Market bottom! Time to buy!” And those investors would be the very hope-filled buyers whose existence would indicate the market hadn’t hit bottom yet after all.
Okay, it’s not exactly Zeno’s Paradox, but it’s a flaw in the logic, yes? Not that it’s anything but an idle question, for me, at any rate. Market timing, I have always felt, is for people looking for ulcers.Related