Social Mood: The Change Agent

Plus je vois les hommes,
Plus j’admire les chiens

(The more I see of man,
the more I like dogs)

—French proverb


It’s a fractious time:

Narrow mindedness, intolerance and mean spiritedness drive much of our public policy.

Civility and discourse in politics have been replaced by intransigent ideologues screaming at one another, each side blaming the other for the nation’s woes.

Religion, in many instances, has devolved from a belief in faith and mystery to certitude: “I’m right, you’re wrong, shut up!”

Social scientist, Dr. Berne Brown tells us that these behaviors are reactions to fear, and the sense of being vulnerable during a time of great uncertainty. Socionomics tells us we are in a bear market in social mood.

Today’s anger and divisiveness are the necessary antidote to the dystopian condition a great bull market brought on in the financial system and the economy. The literature of all past manias shows that one follows the other. Fortunately, the shouting doesn’t go on forever. Le Bon pointed out that angry crowds are the agents for tearing things down. Eventually, they become exhausted and civility fills in the void to restore order.

On the other hand, if it is true that social mood drives all forms of social activity, and the stock market is the best indicator of social mood, how do we reconcile the negativity in politics with a soaring market? The answer is that the entire rally since March 2009 has been corrective of the bear market that began in 2000. In Elliott Wave terms, it is a giant “B” wave, which can make new highs without signaling a new bull market.

The new highs over the past month have been accompanied by massive sell signals in momentum, valuation, and sentiment. The latter is particularly notable. Individual investors have more money on margin in their stock accounts than at any time in history. According to the Wall Street Journal, some advisors are so bullish (without skin in the game) that they are recommending that their clients go on margin to do home renovations, business expansions, and even to flip houses (yes, even house flipping is back in vogue!)

The most telling sentiment indicator for me is that less than half of my distribution list regularly checks in when I post an essay. Doubtless, some have given up on the bearish argument and gotten back into the market. It might not be too bad, if they remain skeptical enough to put stops underneath their positions. The high the market made on May 22 completed yet another five wave Elliott Wave sequence and it did so at the intersection of two multiyear trend lines. The Weekly Buying Climaxes registered an extreme not seen for many years. Buying climaxes are thought to show distribution from strong hands to weak, a very bearish event. There is a good chance that we will not see this high again in our lifetimes.



No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

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