Market reflections after a wobbly week.

After last weekends timely market indicator update which covered the apparent rolling over of mid and small cap stocks in the UK and US I thought I would share with you some interesting thought pieces that I read this week. Before I get into those just thoguht I would mention that according to the AAII Sentiment survey which this week showed the proportion of investor sentiment as follows:

Bullish: 30.9%, down 0.2 points
Neutral: 30.9%, down 6.9 points
Bearish: 38.2%, up 7.1 points

This compares to the historic averages of:
Bullish: 39.0%
Neutral: 30.5%
Bearish: 30.5%

AAII say "Bearish sentiment is near, but not at, the upper end of its typical historical range. The spike in pessimism follows the S&P 500's worst week in nearly two years and suggests some investors believe the market’s upward momentum is being interrupted. Also playing a role in the backdrop are concerns about prevailing valuations, heightened geopolitical tensions, slow economic growth and frustration with Washington politics."

If you want to track this yourself and get an occasional e-mail from AAII, or subscibe, then you can read this article. So are you feeling bullish or bearish or neutral - see how you feel after reading the following.

First up is an older post from June by the great Professor of Finance at the Stern School of Business at NYU Aswath Damoradan called Bubble, Bubble, Toil and Trouble: The Costs and Benefits of Market Timing  in which he looks at valuations and the effects of the fall in bond yields on the equity risk premium. If that all seems a bit too technical for you then just have a look at the table below for a feel his views on valuations.

click to enlarge

Next up I have the Doug Short again (I seem to be quoting him a lot these days) with one of his posts on Secular Bull and Bear markets which appealed to me as I have written in the past about Stock Cycles. He also touches on the effects of demographics and why he thinks this means we are not in a new secular bull market. If you don't want to read it then as they say a picture is worth a thousand words here is a great chart from his piece.

Click to read full article

In terms of the likely extent of any correction there was also a good piece by another writer I follow, Lance Roberts called How big would a "real correction" be? In this he looks at longer term trends and possible support levels although at the time he wasn't necessarily calling for a correction. He also touched on the VIX or the "Fear Index", which I have also covered in the past, as you can see in the chart from his piece below. He did see trend line support at 1700 on the S&P in this piece.

Finally, if last week wasn't bad enough I'll leave you with an important piece from a long time bear John Hussman called:
A hint of advanced warning. Again if you can't be bothered or are too afraid to click on the link here is a chart from his piece that will give you the gist of it, have a great weekend.