Stock Market Euphoria or Stock Market Insanity

The Dangers of Stock Market Euphoria

Updated March 22, 2024

Rising bearish sentiment and a market trading at new highs (at least the Nasdaq is) don’t go hand in hand. Interestingly, no one talks about this development. They keep stating that this market has risen too fast and stocks are due for a sharp correction, yet AI stocks pull back ½ step and advance 2 ½. Value investing is dead, as no one cares about value stocks; however, there are a few exceptions, and one such exception is the banking sector, where many bank stocks are selling at below book value.

Banks work hand in glove with the Fed, so while some might fail, most will survive and continue to thrive. Soon, they will be encouraged to use their funds for trading activities; the excuse will be that they can’t earn enough due to low interest rates and then watch their profits take off. For now, this development is falsely being labelled as Stock market euphoria; the problem is that most individuals would rather not speculate, but with ultra-low rates, they can either speculate or get fried.

Riding the High: Navigating the Risks of Stock Market Euphoria

However, back to the concept of value investing, for the most part, today’s investors don’t care about value investing; this includes both the young and the old. Individuals are looking for investments that can yield high returns but also ones that offer the potential for something new; in other words, technologies and or services that improve their lives. In simple terms, we are in the World of TikTok investors; the concept here is to chase your dreams and hope you don’t wake up to a nightmare. As the silent majority is still sitting on the sidelines, the ones putting this strategy into play, without knowing it, fall into the contrarian camp as they are going against the neutral players basing their investment decisions on old-school logic. However, as these chaps are not contrarian players, eventually, most of them will head for the chopping block.

Back to the sentiment factor, why did not even one expert notice this anomaly? One reason could be that they are stuck in their old ways, and this validates our recent argument, which states that many big players will be reduced to dust as they refuse to adapt and adjust to the changing environment.

The Mass Mindset Factor

The mass mindset is refusing to embrace this market, as indicated by the high bearish readings, which leads to one conclusion only: this market will soar to unimaginable heights, but in between, there will be some wild rides. Ingrain this in your mind; this is the “Market of disorder”. Its function is to throw everyone off because 90% of the populace focuses on the tree or the forest. Very few players understand that both are important. Only if one can view the situation from multiple angles will one have any hope of understanding this market today and 60 months from today.

The Dark Side: Why Too Much Optimism Can Be Dangerous

The “market of disorder” means we will even have problems identifying short- to intermediate-term trends. The primary function of such a market is to create the illusion that short-term and intermediate trends will determine long-term trends.

Yes, you heard us correctly; we anticipate having issues identifying the shorter-term trends. We have also stated that we are not experts or masters; experts know nothing, and masters are just bad students who decide to give up. On the other hand, we consider ourselves advanced students; this means we are ready to adapt and learn new methodologies.

We don’t take anything for granted. The good news is that the short to intermediate-term trend does not determine the long-term direction. So, while we might run into some issues on the short-term timelines, we don’t fear the same outcome when examining the long-term trend. Why would we admit such a matter; why not just keep quiet about it?

TI subscribers: A cut above the rest

Well, for one, our subscribers are not stupid and playing dumb; it would be an act of disservice. As we advance, most financial services that don’t treat their customers with the respect they deserve will pay a steep price for their arrogance. However, more importantly, it illustrates our willingness to embrace new concepts and our desire to adapt to changing market conditions.