In the perpetual cycle of the masses buying toward market tops and
capitulating toward market bottoms, I often think of the old Wall Street
adage; “It’s always darkest before the dawn” which refers to the fact
that market bottoms come when the news regarding the fundamentals and
the outlook for the markets and economy is horrible yet the
deterioration looks almost certain to continue going forward. I’m sure
there is a good corollary to that statement out there somewhere which
essentially says that things are looking great at a market top and just
about all forecasts and trends point to things only getting better from
there… or something along those lines. With that, I leave you with
these two Google searches using the same keywords, the first one limited
to headlines over the last month and the next one limited to headlines
over the month preceding the market top on May 2, 2011, just before the 5
month & nearly 22% plunge in the index.
Keep in mind, being contrarian just for the sake of being contrarian
will usually cost you money, either in the form of missed out gains from
sitting on the sidelines and missing out on a rally (or shorting a
correction) or even worse, from fighting a trend that there is little
technical or other substantial supporting evidence to support your
case. In other words, you can’t just go shorting the market every time
things look good or buy the market when the fundamentals look ugly.
However, when it comes to choosing between fundamentals (which I view as
dated information, almost always fully priced into the market or a
stock by the time you or I hear or read about it) vs. technicals
(charts), I will side with the charts nearly every time.
These screenshot images can be viewed in full-size on RIght Side of the Chart by clicking here.