"Dear David and Eoin, many thanks for the excellent commentary which I am thoroughly enjoying. Extreme greed (as fuelled by hope) seems to be the current driver of current markets. Should we be afraid? Appreciate your thoughts on this. Thank you."

David Fuller's view We are glad that you are enjoying the commentary and thanks for your interesting question.

I am not sure which market(s) you are referring to but will assume equities, which have mostly done very well since mid-November. If we recall market sentiment back then, and in emotional terms it may sound like it was light-years away, the public mood was quite bearish, although fortunately not at Fullermoney. Here is a link to November 16th's Comment of the Day (will require Subscriber's registration), commencing with the headline contributed by a subscriber: "To many investors are falling under the spell of false omens", when both Eoin and I talked at some length about stock markets which were quite oversold but had yet to confirm recovery scope on price charts.


If you click on the 'Next Item' (link shown just above November 16th's copy date), you will see how the bullish assessment progressed over the weeks as stock markets confirmed lows and recovery prospects.

I mention this for perspective because I associate "extreme greed" with runaway bull markets of several year's duration, rather than recoveries from oversold conditions, albeit within an overall upward trend. Today, we do see plenty of short-term overbought conditions, most easily recognised by the number of overextensions relative to rising 200-day moving averages on weekly charts. This tells us that the global stock market rally is becoming temporarily overextended.

However, I still see more fear than greed in market circulars because expectations have been understandably lowered by the bear markets in 2000 and 2008. Also, there are plenty of investors who have missed the rally. Subscribers may recall my question over the last few years, do those big bear markets make it more or less likely that another will occur soon?


I think stock markets have now answered that question. Moreover, they are still benefiting from a powerful monetary tailwind created by low interest rates and quantitative easing (QE). In the short-term, I do not expect markets to maintain their recent rate of advance for much longer because it has been exceptional. However, I will still give the upside the benefit of the doubt until I see evidence that the uptrends since mid-November are losing their consistency beyond somewhat lengthier consolidations and a slower rate of advance. Meanwhile, markets show that investors are reappraising global economic risk, and I agree with their less fearful and more hopeful assessment.

I will worry more when the Fed withdraws QE. However, I do not think that any of us know for sure what will happen to stock markets at that time. I think it will depend on where they are, and how much scope there is for a transfer of funds from bonds to equities. Meanwhile, there is a very interesting report below, kindly forwarded by a subscriber, which may cast some not too discouraging light, at least during the earlier stages of a move away from QE.