Bear Market Killing Level of Fear

That title is hard to parse.  He means a Bear-Market-Killing level of fear.  The amount of fear needed to kill a bear market.  As a rather contrary individual, I find it delightful that mass consensus of doom and gloom is a strong indication that the mass consensus is dead wrong.

The following excerpt is from my favorite investing blog (membership required, but lots of information is also available for free).  The added emphasis is mine.

SMI Weblog: Bear alert? Bah humbug.
The Hays methodology is to closely monitor three main market components — Psychology, Monetary, and Valuation. The “health” of these three components, measured by numerous indicators for each, is boiled down to a score of 1-6, with 1 being the best and 6 the worst. The interplay of these three scores gives them an idea of how attractive the market is at any given time, and by extension, how committed their clients’ assets should be to the stock market.

On Friday, Dodson wrote that their psychology composite had hit P1 last week, which is their most bullish reading. Here’s his comment:

“P1s are extremely rare. A P1 is bear market killing level of fear. Looking at our monthly tabulations of sentiment, a P1 has only occurred a couple of times since 1990: in October 2002 and October-December 2008. Both are on the who’s who list of market bottoms. For October 2002, it marked the ultimate low. In October 2008, it marked the market’s internal low and good entry point, but you really had to sweat it out until the ultimate market low in March 2009. That we have been able to hit P1 after a correction of 16% is astonishing. Investors sit on pins and needles.”

So, a “bear market killing level of fear” is a good thing!

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