So here we are–two-thirds through summer and heading into the haziest month of all.  The good news?  It’s all unfolding as planned – slow, tedious, nerve-wracking and it’s crushing bullish sentiment.

August – home to the summer doldrums.

Earnings season, increasingly mimicking a circus act with third and fourth string traders at desks, with the wild internal gyrations masked by the averages, continues to cause one to ponder.  I cannot tell you how many wonderful earnings reports have been met with preposterous market reactions.  What can we take from the internal absurdity?

These elements are very likely to be the winners of the next few months as dumb reactions to excellent earnings tend to wear off and leave short-term traders in the dust.

Speakin g of Poor Reactions

We started the summer suspecting choppy action with a hoped for bent to the downside – a summer swoon if you will – to take advantage of.

While the averages have not done a great job of providing a “significant swoon” from which to grab that advantage, dozens and dozens of very solid, long-term stocks have been chopped down for no other reason than just a quiet, scared marketplace.

This is good – and has caused yet another critical effect from which long-term investors can benefit greatly from in the months and years ahead…

Sentiment continues to deteriorate – and that is bullish.

Take a look at this 8-week moving average of bulls and bears – note the other times we were in this same vicinity for this very important – and leading – contrary indicator.

Hint – it was 2003 and 2009.


Indeed, this remains the most hated bull market in history.

On a weekly basis, the latest results show bullish readings plummeted and bearish readings went through the proverbial roof – with bulls falling back to 21% and bears topping 40%.  It is very rare to see a 2 to 1 reading – even more rare to see an 8-week moving average at these low points noted above in red.

Not only are we now matching LOWS seen in 2003 and 2009, we are rapidly approaching levels seen back in 1991 during that recession at the time (almost 15,000 points lower on the DOW).

I should point out – just in case your summer cocktails are blurring your vision – that these previous lows in sentiment were reached AFTER massive sell-offs. 

And the best part of all?  The most significant demographic event to ever hit the US economy is slowly rolling toward our doorstep.

Pity the naysayers and the Black Swan Hunters.

The Lesson in the Haze?

As long as we can stomach the summer chop – and somewhat ignore it emotionally – then we have a platform setting up which provides for very positive surprises to the upside once the haze clears.  But likely only for the patient investor focused on the long-term horizon.

This looks more and more like it is setting up for a Q4 run to the finish line.  Some of the best managers I know are well behind the 8-ball this year as the summer churn continues.  This sets us all up for a return to normal now that everyone is once again petrified.

One Sector Clouds All

The headlines tell us that earnings are down – they are if you own oil stocks.
They are not if you were privy to missing the oil price plunge.

Devil is in the Details

It is important we keep our head’s about us and stay focused:

The aggregate growth rate turned negative this season following the release of the Exxon and Chevron, with com parisons particularly tough for Chevron. Total Earnings for the 85% of companies in the Energy sector on the S&P 500 index that have reported are down -60.6% on -31.7% lower revenues, with only 52% beating EPS estimates and 44% coming ahead of top-line estimates.

These are the weakest results we have seen from the sector in any recent quarter, and indeed remains a drag on the aggregate growth picture for the S&P 500 index.

However–and this is the part being missed in the headline battle: 

Excluding the Energy sector results, total earnings for the rest of the index members that have reported results would be up +5.4% from the same period last year on +1.4% higher revenues.

Sure – not as great as we adjust to the global problems in other areas – but given the avalanche of bad headlines to fret ove r – a remarkable set of numbers when looking beyond the energy punch in the gut.

And by the way – as you grab that second cold cocktail – those are once again record highs!

In laymen’s terms for the slow guys like me – that means we have never seen industry (overlooking energy) earn more in the history of the planet.

Not a bad deal at all when you consider the chart above on sentiment.  People hate stocks again – they always hate stocks when they are the cheapest.

Nothing has ever changed.  It is unlikely that the summer haze of 2015 will be much different!

Let’s stay focused – enjoy the summer – prepare to own this chop and be patient for the surprises ahead.