Financial media can be a great source of information and insights on the market, but it is important to be wary of it as well. Many financial media outlets make predictions about the stock market that turn out to be misleading or inaccurate. It’s not their intention, but during times of extreme sentiment financial news tends to be loaded with lots of emotions. This tends to coincide with turning points. This is one of the biggest mistakes by investors: they tend to look for news to explain their emotions, often seeking help, but will only get served more emotions while in reality they are desperately looking for turning point related insights. Turning point analysis is not what financial media will serve, unfortunately.
It is important to understand that moments of extreme sentiment (both bullish and bearish) the market is often at an important turning point. The irony is that people tend to look for news exactly when sentiment is most extreme. The human, intuitive reaction, of looking up news to explain extreme sentiment, is understandable. However, financial media is not the answer to the human need. Turning point analysis is the answer. Not any financial media outlet will mention a turning point in markets, not any. They will do what they have to do, as a commercial organization, which is sell stories to maximize ad revenue.
Lots of illustrations from the recent past
The chart shows the NYSE index over a period of time with annotations marking points of extreme sentiment. Point #1 is marked as an instance of extreme bearish sentiment, Point #2 as an instance of very bullish sentiment, and Point #3 as an instance of extreme fear. In all those instances, the NYSE index went the other direction, suggesting that extreme sentiment tends to coincide with turning points in markets.
At point #1 on October 13th, 2022, there were a few factors that contributed to extreme bearish sentiment in the markets. The S&P 500 had just experienced a significant decline, with some analysts predicting a further drop. The US Federal Reserve had also just announced plans to reduce its bond-buying program, which was seen as a negative signal for the market.
