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The following tweet from February 3 caught our attention because it further refined our comments regarding the unfolding 14 stages of market psychology and compared the current “return to normal” belief about markets to a critical point in the unfolding 14 stages of the 2007-2009 Primary Bear Market:

In our December 26, 2022 Article, we discussed the fourteen stages of emotions that produce a market cycle:

“Change is difficult for humans to process. The most challenging adjustment is the death of someone or something we dearly love.

2022 saw the end of a Primary Bull Market and a Secular Bull Market.

Psychologists will tell us that:

Persistent, traumatic grief can cause us to cycle (sometimes quickly) through the stages of grief: denial, anger, bargaining, depression, and acceptance. These stages are our attempts to process change and protect ourselves while we adapt to a new reality.

2022 was a year of denial of the death of the Bull Market. 2023 will ultimately be the year of acceptance and capitulation. We will address that second part in next week’s article.

Last week we discussed the fourteen stages of emotions that produce the ever-repeating cycles of the market:

And we suggested that:

“As an exercise, we suggest that the reader review the above and answer this question:

Where on that continuum are we NOW?”

Below are those 14 stages in the above diagram defined:

OPTIMISM – It starts with a hunch or a positive outlook leading us to buy a stock.
EXCITEMENT – Things start moving our way, and we get giddy inside. We begin to anticipate and hope that a possible success story is in the making.
THRILL – The market continues to be favorable, and we can’t help but start to feel a little “smart.” At this point, we have complete confidence in our trading system.
EUPHORIA – This marks the point of maximum financial risk and maximum financial gain. Our investments turn into quick and easy profits, so we begin to ignore the basic concept of risk. We now start trading anything we can handle to make a buck.
ANXIETY – Oh no, it’s turning around! The markets show their first signs of taking your “hard-earned” gains back. But having never seen this happen, we remain ultra-greedy and think the long-term trend is higher.
DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong, we think to ourselves. Our “long-term” view now shortens to a near-term hope of improvement.
FEAR – Reality sets in that we are not as bright as we once thought. Instead of being confident in our trading, we become confused. At this point, we should get out with a small profit and move on, but we don’t for some stupid reason.
DESPERATION – All gains have been lost at this point. We had our chance to profit and missed it. Not knowing how to act, we attempt to do anything that will bring our positions back into the black.
PANIC – The most emotional period by far. At this stage, we feel like we are at the mercy of the market and have no control. We are clueless and helpless.
CAPITULATION – We have reached our breaking point and are selling our positions at any price. So long as we can get out of the market to avoid more significant losses, we are content.
DESPONDENCY – After exiting the markets, we never want to repurchase stocks. Wall Street is not for us and should be avoided like the plague. However, this rare point marks the point of maximum financial opportunity.
DEPRESSION – We drink, cry, and pray. How could we have been so dumb? We think to ourselves. Fundamental traders are born here, learning from past mistakes. Some start to look back correctly and analyze what went wrong.
HOPE – We can still do this! Eventually, we realize that the market does have cycles (shocking). We begin to start analyzing new opportunities.
RELIEF – The markets are returning positive, and we see our prior investment return. We regain our faith (although small) in our ability to invest our money. The cycle starts all over again!”

We had suggested that our assessment of the psychology of markets puts the “conventional wisdom” somewhere between denial and fear. Since the first of the year, we have seen psychology as believing that markets are “returning to normal,” suggesting that downside risk has vanished. This is at the upper edge of “denial.”

The following specific refinement of that cycle, both in 2008 and this year, 2023, came to our attention from the above tweet:

In the above message from Ponzi Finance, the chart from Dr. Jean-Paul Rodrigue (hyperlinked) lines up the 2023 market with 2008, highlighting the current danger now aligning with July 2008.

A discussion of the 14 phases can be found here and here. We’ve included more information on the subject here.

The “bottom line” from the above tweet in context with Dr. Rodrigue’s studies of bubbles and crashes documents our earlier findings.

But additionally, it makes sense of this “return to normal” psychology that has become the conventional wisdom regarding markets. This is a recurring theme at this point in Primary Bear Markets….

…And spectacular opportunity for those who align with the trend.

The following two charts show where we were at this stage of psychology in 2008 and where we are in that cycle now.

The red down arrow in 2008 matches the down red arrow in the 2023 chart on its right side:

Can we guarantee that we’ve lined it up perfectly and that we are there TODAY? Of course not. Are we saying, “any minute now?” Certainly not. We have no way of knowing the day or the hour, nor would we claim such prescient ability. But we know what has happened will happen again and recognize a general pattern ready to complete in this time frame. And we know that this recent “return to normal” psychology phase suggests extreme danger for those holding stocks.

We are saying that as a general pattern, we believe markets to be in the same part of the cycle of psychology and the same general point in the price pattern NOW as we were in July 2008 in the above chart and that the next move of major significance will be a very severe decline- such as we’ve not seen since 2008 with the possible exception as during the brief pandemic panic in 2020. This coming phase, however, will not be temporary or transitory.

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Special Offer: One Week of Seven Sentinels for One Dollar

We Update Intraday Breadth and NYMO Data Several Times Daily @sevensentinels on Twitter. This data is available to any who may wish to follow us there.

Sudden Psychology Shift Signals Grave Danger/Spectacular Opportunity

========================

In our December 26, 2022 Article, we discussed the fourteen stages of emotions that produce a market cycle:

“Change is difficult for humans to process. The most challenging adjustment is the death of someone or something we dearly love.

2022 saw the end of a Primary Bull Market and a Secular Bull Market.

Psychologists will tell us that:

Persistent, traumatic grief can cause us to cycle (sometimes quickly) through the stages of grief: denial, anger, bargaining, depression, and acceptance. These stages are our attempts to process change and protect ourselves while we adapt to a new reality.

2022 was a year of denial of the death of the Bull Market. 2023 will ultimately be the year of acceptance and capitulation. We will address that second part in next week’s article.

Last week we discussed the fourteen stages of emotions that produce the ever-repeating cycles of the market:

And we suggested that:

“As an exercise, we suggest that the reader review the above and answer this question:

Where on that continuum are we NOW?”

Below are those 14 stages in the above diagram defined:

OPTIMISM – It starts with a hunch or a positive outlook leading us to buy a stock.

EXCITEMENT – Things start moving our way, and we get giddy inside. We begin to anticipate and hope that a possible success story is in the making.

THRILL – The market continues to be favorable, and we can’t help but start to feel a little “smart.” At this point, we have complete confidence in our trading system.

EUPHORIA – This marks the point of maximum financial risk and maximum financial gain. Our investments turn into quick and easy profits, so we begin to ignore the basic concept of risk. We now start trading anything we can handle to make a buck.

ANXIETY – Oh no, it’s turning around! The markets show their first signs of taking your “hard-earned” gains back. But having never seen this happen, we remain ultra-greedy and think the long-term trend is higher.

DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong, we think to ourselves. Our “long-term” view now shortens to a near-term hope of improvement.

FEAR – Reality sets in that we are not as bright as we once thought. Instead of being confident in our trading, we become confused. At this point, we should get out with a small profit and move on, but we don’t for some stupid reason.

DESPERATION – All gains have been lost at this point. We had our chance to profit and missed it. Not knowing how to act, we attempt to do anything that will bring our positions back into the black.

PANIC – The most emotional period by far. At this stage, we feel like we are at the mercy of the market and have no control. We are clueless and helpless.

CAPITULATION – We have reached our breaking point and are selling our positions at any price. So long as we can get out of the market to avoid more significant losses, we are content.

DESPONDENCY – After exiting the markets, we never want to repurchase stocks. Wall Street is not for us and should be avoided like the plague. However, this rare point marks the point of maximum financial opportunity.

DEPRESSION – We drink, cry, and pray. How could we have been so dumb? We think to ourselves. Fundamental traders are born here, learning from past mistakes. Some start to look back correctly and analyze what went wrong.

HOPE – We can still do this! Eventually, we realize that the market does have cycles (shocking). We begin to start analyzing new opportunities.

RELIEF – The markets are returning positive, and we see our prior investment return. We regain our faith (although small) in our ability to invest our money. The cycle starts all over again!”

The following specific refinement of that cycle, both in 2008 and this year, 2023, came to our attention from the above tweet:

In the above message from Ponzi Finance, the chart from Dr. Jean-Paul Rodrigue (hyperlinked) lines up the 2023 market with 2008, highlighting the current danger now aligning with July 2008.

A discussion of the 14 phases can be found here and here. We’ve included more information on the subject here.

The “bottom line” from the above tweet in context with Dr. Rodrigue’s studies of bubbles and crashes documents our earlier findings.

But additionally, it makes sense of this “return to normal” psychology that has become the conventional wisdom regarding markets. This is a recurring theme at this point in Primary Bear Markets….

…And spectacular opportunity for those who align with the trend.

The following two charts show where we were at this stage of psychology in 2008 and where we are in that cycle now.

The red down arrow in 2008 matches the down red arrow in the 2023 chart on its right side:

============================================

Special Offer: One Week of Seven Sentinels for One Dollar

We Update Intraday Breadth and NYMO Data Several Times Daily @sevensentinels on Twitter. This data is available to any who may wish to follow us there.