closing 2009: sentiments and markets

The two columns below compare several, mainstream news stories from March-April 2009 to those of today:

Spring 2009: "Dow 5,000? A Bearish Possibility?" (Wall Street Journal) "The bear market is tightening its grip. No one is taking a back seat approach. Everyone is selling. We're collapsing in on ourselves." (New York Times) "I don't want to sound like the grim reaper, but it's possible that one of the [major] averages could come down by another 50% drop from here. This is a slow-drip, slow-death decline." (LA Times) "It's going to continue its easiest path, and that path it sees is down. That's where we're stuck right now and who's going to get out in front of it?" (AP)

November 2009: "Government Policies saved the big banks from imploding..." (Forbes) "We have a lot of room to run. The advance [in stocks] shows that the recession is over. I don't know how you could wish for better circumstances." (Bloomberg) "Dow Above 10,000: The milestone caps a stunning 53% comeback for the Dow since early March. It's almost like an announcement that the bear market is over." (AP) "Today's market rose in spite of the unemployment numbers. It's a sign that the Bull Market Is Back." (CNBC)

Eight months ago, there was no "fundamental-based" reason to believe the ongoing slaughter of stocks and financials would stop. The U.S. equity market stood at its lowest level in 12 years, while the banking system seemed near a total collapse. In the words of the stories in the left-hand column above -- the bear was "tightening" its grip, the clearest path for stocks was "down," and there was no light at the end of the tunnel.

But as the quotes in the right-hand column show, the opposite actually occurred: A 50%-plus rally in stocks and all-out rebound in investor optimism. This alternative is exactly what our analysts foresaw.

Here, the following archive of EWI's past analysis stands in complete contrast to the "grim-reaper" sounding mainstream:

February 23, 2009 Short Term Update:

"If one is aggressively bearish the stock market, having a planned out exit strategy now is not only prudent, but necessary in light of some of the sentiment readings we see."

Namely, a 3% reading in the Daily Sentiment Index, the lowest level in the 22-year history of weekly figures.

February 23 Elliott Wave Theorist:

"Ideally, the S&P should continue down into the 600's. When it's finds a bottom and rallies, it will be sharp and scary for anyone who is short. I would rather be early than later."

February 27 Short Term Update:

"The turn will come on or near March 10, 2009. Anywhere in this period may mark a turn, which will obviously be a market low."

The S&P bottomed two weeks later at 666.79 on March 9.

April 2009 Elliott Wave Theorist:

The rally "could carry the Dow as high as 10,000. Regardless of its extent, it should regenerate substantial feelings of optimism... the government will be taking credit for successfully bailing out the economy, and investors will be convinced that the bear market is behind us. Be prepared for this environment."

Flash ahead to today: The November 6, 2009 Short Term Update picks up where the April Theorist left off and presents the following close-up of the S&P SPDR Trust versus the 10-day Daily Sentiment Index.

(from elliottwave.com, November 9, 2009)