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Real Time Insight

Over the weekend I circulated a version of the classic market psychology "chart." You know the one that shows how all bull markets climax in euphoric "this time is different" emotional extremes -- and tears.



I wanted to know where active traders and investors thought we were in this cycle of crowd behavior. Thousands of people looked at the graphic and dozens responded with a healthy mix of everything from pre-Greed to post-Denial (I have to figure out how to attach a survey button right to the chart somehow to get more responses).

The graphic doesn't include all possibilities. It doesn't even have the word "euphoria." And most respondents were clearly confused by what "Return to 'normal'" meant (hint: it's Delusion part 2 where the crowd breathes a sigh of relief that the New Paradigm is still alive).

But this map is an eerily accurate window on what has repeatedly transpired in past bubbles. So let me know where you think we are and feel free to add your own amendments or exceptions.

I'll tell you what I think right now: I think we are entering a Greed phase and we are not yet to Delusion or New Paradigm euphoria. In short, I think the S&P will spend a lot more time near 2000 and above than 1600 and below over the next 2+ years.

This view is also based on my belief that the Secular Bear Market is over (13 years was enough and it doesn't have to be 17) and that the move above S&P 1600 will find support there barring a recession.

One more important point about the crowd: some folks I discussed this with had already thought about it quite a bit as they favor the "behavioral" aspects of markets as much as the fundamental. One theme was that this time could be different in terms of the way the bubble peaks and ends.

In short, the classic idea that the retail investor rushes in at the end may not be the force it has been in the past. Here's how I summed it up in one exchange with a Zacks Ultimate member who saw an early exit from the bubble as Boomers opted out...


I agree about Boomers hanging on to their savings and not risking it all in their twilight years. In that sense, the demographics are against the typical euphoric top because the biggest and wealthiest cohort is saying "Never again!"

Looking forward to your ideas about the trickiest part of valuation -- figuring out what the better investor (or greater fool) will pay.

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