The Myth that Everyone is Too Bearish on the Stock Market

Does this look like bearish behavior to you?

Nasdaq plunges at the open by 1.6%, rallies higher because dip-buyers flood in, believing they’re getting “bargains.” Same story with the S&P 500.

I wish I would’ve taken screenshots on these Finviz daily charts over the past few weeks (really, months) to show you that this is not just a one-off today. It’s an every day type thing: market plunges lower at the open, then rallies throughout the day.

People are still frantically trying to buy the dip in this misplaced belief that the party is still going, the bull market is just taking a breather, and that stocks only go up.

Remember: the Nasdaq is currently down 36% from its all time highs and the S&P is down 26% and yet we have still not once triggered the circuit-breakers, meaning a -7% down day on the S&P.

We have not yet seen true panic and chaos. This has been a very orderly and gradual selloff all things considered. They always say that stocks take the stairs up and the elevator down, but in this case the major stock indexes are largely taking the stairs down.

There is still, despite everything that has happened this year and is continuing to happen, despite the Fed’s constant and unequivocal declarations that they will not pivot, an indefatigable dip-buying mindset out there among investors.

Every week there’s some nonsensical burst of hope and optimism that a Fed pivot is imminent, and every week those hopes and dreams get crushed spectacularly, and nobody ever learns.

There is still no true fear on Wall Street despite the Fed’s constant claims it will not pivot and will continue hiking. 

Yeah, the market is down 20-25% or whatever, but everyone on Wall Street believes the Fed will pivot.

To avoid a “policy error,” as if it wasn’t its overly dovish “policy error” that got us here in the first place.

Nobody is actually fearful. Everyone is still in the dip-buying mindset.

Nobody actually believes we’re in a real bear market. They still believe the Fed is omnipotent and will get us out of it.

Then we can go right back to default mode: up.

Because of all the passive investors who just expect endless green days in the markets.

It’s like a party that got too loud, and the cops came by, told them to turn it down, and they’re just waiting until the cops are far enough away to turn the music back up.

There is no shift in the underlying market psychology yet. People still want to buy the dip, they still think the bull market is intact, they think this is temporary choppiness—they think the party is still going.

The Fed is trying its damndest to say, “No, the party is over.”

But investors don’t believe them. Even though it’s the fastest hiking cycle ever, a clear sign that the Fed is panicking. Even though the Fed keeps saying, “We’re not pivoting.”

Nobody believes them. Wall Street is basically advising their clients that there may be a bit more downside (no lower than 3000 on the S&P) but that the Fed will soon pivot and it will be a great time to buy.

But remember: last year the Fed stress-tested the banks to see if they could withstand a 55% drop in the stock market. That is the expectation here. If that happens, we will see the Nasdaq down 70% or more.

People are just not getting it. They have been conditioned by non-stop Fed easing and low interest rates over the past 13 years to believe that’s the default setting.

Until people start panicking, until people don’t want to buy the dip, this thing is not going to bottom.

The reason it’s so difficult to buy the dip is because when the real bottom is in, most people will be so thoroughly disillusioned and disgusted with the stock market that they have no interest in buying it.

It will be scary. You won’t want to buy the dip because you’ll be thinking we might never come back from this as a country. You’ll think the US economy is finished. It will feel like the stock market is going to zero.

It will only be when the last bulls throw in the towel, and the dip buying mindset is BROKEN, that the market can really free fall and hit a point where it’s gone too far to the downside.

We are not there yet. We are not even close to there yet.

People need to understand that it is over, the party is finished. The Fed spent 13 years boosting the stock market to all-time highs, but now that’s over, and people don’t realize it yet.

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