Weekend Nov 27 2021
Farrell Rule #9
- When all the experts and forecasts agree – something else is going to happen.
Translation: This rule fits with Farrell's contrarian streak. When all analysts have a buy rating on a stock, there is only one way left to go (downgrade). Excessive bullish sentiment from newsletter writers and analysts should be viewed as a warning sign. Investors should consider buying when stocks are unloved and the news is all bad. Conversely, investors should consider selling when stocks are the talk of the town and the news is all good. Such a contrarian investment strategy usually rewards patient investors.
I originally wrote this column Tuesday focusing on inflation. Friday, today, was a shortened trading day closing at noon CST. This is the typical Friday after Thanksgiving and usually consists of low volume and little movement. That was not the case today.
The Goldman Sachs Commodity Index declined 6.65%, today.
Crude Oil declined $10.24 or 13.06%, today. This reminds me of 2008 when crude soared to $140 and then collapsed to $35 by Christmas.
The Dow declined 905.04 points or 2.53%. Small caps lead so the Russell 2000 dropped 3.67%. the DJIA and S & P made new highs in November but have dramatically reversed.
while the media blames this on increased Covid, the truth is that the markets have completed a five wave pattern dating back to the lows of 1931. It is highly unusual for such a reversal to occur on what should have been a minor day but here it is.
See https://professorelam.typepad.com/markets/ ofr charts and more commentary this weekend. My opinion is that this is NOT a buy the dip opportunity. We have detailed the warning signs for months via lack of breadth, focus on electric car and a handful of FANG stocks, wild optimism for meme stocks which are not earning any money, and the crazy crypto fad. Add in the mania for art and real estate and we have a market mania top at hand.
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