It is said be many, and I agree, that the stock market is rigged so that as many people as possible will be wrong as often as possible. This contrarian thinking is also backed by many studies which show that strategies that work are counter-intuitive.
So far it worked well for me trying to figure out the route of the market since I got active analyzing the market again last fall.
Let us take a look at my favorite scenario that I think will fool most people getting in the stock market at the worst time.
The facts are as follows:
- Since last fall we have had many difficulties all over the world
- The stock market has risen a lot
- Most people have been afraid of getting in the market
- Most ways of measuring the trend is pointing up, which is what many people like to see before entering the market
- The last movement up has been almost without any big draw-downs.
So most people now are noticing that the trend is up, they also read all the positive things happening in the economy (the bad things aren’t shown so much in media when the stock market is going up). So now people are looking at a time to enter the market. Every big draw-down now will likely attract a lot of money.
When the market finally enters a multi year high, just 2% up from where we are now, then they will throw their last dollars in desperation not trying to miss the rally. They do not even realize that they just missed a 25% move from the bottom. When that happens I think we reached a new multi-year high, maybe for many years to come.
This is just an ideal scenario that I would like to see. Of course there could be other similar scenarios or I could be totally wrong, but this would fit my expectation of the psychology and knowledge of the market.
Also note that I will short the market at a time when most of the traditional type of technical analysis would scream buy.