After last week’s dip the sentiment of many are getting pretty bearish. There is an old saying that the majority must be bearish to get a bull market. This is due to the fact that the bears will keep shorting the market. Then as the market goes higher, they will sell to the bulls.
I believe what many people are missing is the longer term outlook. As we head into the end of October, we have elections coming up. It appears the elections are causing a great uncertainty for the international investors. One has to understand that the Dow Jones is what international investors use to enter into the US equities. Then the NasDaq is retail and S&P500 is domestic.
These 3 indexes all have different timing and purposes, but what appears to be happening is the international capital flowed in and now is holding off a bit due to the elections which are upcoming in November.
I documented earlier some information of the majority’s bearish outlook into stocks. In the game of trading, it appears longer term is what will always earns traders the big returns when following the right cycle. Too many losses happen in short term trading mostly due to emotions and fluctuations. The false moves get the most experienced traders.
More Bearish Sentiment Today:
I wanted to document some of the sentiment today as I have been reviewing some of the news channels. We now have Morgan Stanley warning of a ‘dead cat bounce’ in equities. You can read the article here.
Then we are getting opinions of folks asking people if they would be prepared if the Dow Jones were to fall 5700 points.
Historically Capital Always Looks For Safety
We have the panic of 1907 in San Francisco which Jessie Livermore made a fortune when the market crashed. This is one way capital flee’s due to natural disasters as the earthquake destroyed the railroads and production of many companies in the USA. This caused money to flee out of stocks and escape the uncertainty.
Then during world war I and world war II, it was clearly apparent that capital was fleeing international countries into the United States which caused a huge bull market here in the USA. This was an example of capital fleeing due to war and uncertainty as well.
What’s interesting is during last week’s crash we see capital flee away from investments into gold. Look at the image below of the gold rising higher the week of 10/15 while the markets took a dip. This again is capital fleeing in a small emotional panic mode. But what is interesting is that gold did not appear to get above a major low at the end of last year. Literally touching it and going back down. So as of today, we have not closed above this 1235-ish area.
Never Look At Just One Market
It appears markets are similar to life. There is really no single cause for a single effect. It appears that many causes create an effect. The same appears to be happening with markets. If you look at Gold, then currencies and the markets around the globe. You will see some markets decrease while another increases.
A fair assumption could be that when the US dollar goes up, we see commodities go down. As the currency sets a value of commodities. But we cannot only look at the currency from a domestic view. It also must be looked upon as an international investor as well.
My Trip To China Helped Me View The World Differently
Upon running and building brands, I take trips to visit some business colleagues around the globe. It was amazing to find such differences in culture when you travel. As I continue to visit Shanghai I am amazed at how a smart business and trader can leverage currency. The currency is much more important than one can imagine. The higher your currency is domestically will cause a drop of assets such as commodities and require businesses and manufacturers, employees a much more heavier cost when working domestically.
You can see this when you take your currency to another country and your currency is much higher then the country’s currency you visited. This allows one to obtain better deals on just about everything, until the tide turns momentum on the trend of that currency. This is why many international countries are very happy accepting US Dollars right now.
It’s a very interesting world we live in. I guess the point I am trying to make is the fact that you will need an international view in order to be a great investor and business person.