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Sensex and a market indicator: ET News

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On a day the Sensex rallied over 500 pts (564 points to be exact) ET carries an article titled why it may fall to 22000 on its front page. The article points to the disbelief in the current rally which has traveled quite quickly from 24923 to current levels and why it may fall to 22000. Whether it may fall or not is a moot point. But, on days when market has moved considerably one should pay special attention to the headlines on media, not because they might be right in their assertion, but because they can be used to gauge the sentiment extremes in the markets and act as great contrarian indicators.

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For example if Sensex after rallying for a few months, had again posted a stellar rally good enough to become mainstream media headline, so much so that not only financial news media, but also the non-financial news media had carried the news with extremely bullish forecasts (like Sensex at 100000 or Nifty at 30000 etc) it would point to a sentiment extreme in the market and should be taken as a strong contrarian sell indicator.

Today’s article is saved by the fact that it is part of financial news media and not non-financial news media, so it carries comparatively less weight in terms of being a sentiment extreme, but it can still be a useful contrarian indicator. Lets us elaborate.

If you look at the attached screenshot, it has juxtaposed a bearish article alongside a bullish article (an article pointing to a bullish event). Also notice the other major news surrounding  these articles, most are very positive developments or projections ( PE fund set to touch all time high, GDP to exceed 7.5%, Germany pledges billions to India etc.). From editors perspective, one might think that the bearish article would provide a balance to the otherwise positive environment and act as a caution, but what it actually points to is the sub-conscious disbelief of either the writer or the editor or both. Further, it is not only their individual disbelief, they are actually reflecting the predominant mood in the public (since as far as predicting the market direction goes they are no more or less knowledgeable than the common public).

Like we said since this article is part of the financial news media and not non-financial news media, its value as a sentiment indicator is reduced to the extent that it doesn’t point to a major trend changing signal. But it still holds value to the extent that it points to a largely prevalent disbelief in the current market, which is a good enough contrarian indicator to tell you that the likely hood of the Sensex heading up is significantly higher than it going down to even the recent lows of 24923, you might as well forget 22000 Sensex forecast for now!

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