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Bullish consensus is a valuable market indicator

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How Joe Kennedy saved his fortune with investment advice from an 8-year-old.

Bullish Consensus is technical indicator. It is the percentage of market participants who expect the price of a given commodity or stock to go higher. It is also known as “Contrary Opinion” and “Bullish Sentiment.”

Joe Kennedy, the father of the 35th president of the United States, had become one of the richest men in the world by 1929.

Around mid-September of 1929, Kennedy was headed to his office in downtown Boston with the morning newspaper in-hand. He walked into the elevator to go to his top floor office with a splendid view of the Boston skyline.

As always, the 8-year-old elevator operator boy said, “Good morning, Mr. Kennedy.” Kennedy was always polite to the boy and often chit-chatted with him. Kennedy was reading the newspaper headline about how the stock market had made new highs with a spectacular move the previous day.

The elevator boy asked, “Mr. Kennedy, have you heard about the stock market? It is making a lot of people a lot of money.”

Kennedy said, “Really? Tell me about it.” Kennedy was intrigued that an eight-year-old boy knew about the stock market.

“Well, Sir, last Friday my grandma told me she had invested $20 in the stock market, and a week later that $20 was worth more than $500! Can you believe that, Mr. Kennedy? $500! I had saved $5, and Grandma invested it for me on Monday. I have already made more than $100! Mr. Kennedy, I am sure you could really make a lot of money in the stock market!”

Kennedy told the boy he greatly appreciated the investment advice and gave the boy triple his normal tip.

As Kennedy walked by his secretary’s desk, he told her to get all his stock brokers in his office within the hour.

Sell it all

All sixteen of Kennedy’s stock brokers arrived. Kennedy told them to not to bother finding a chair as this was going to be a very short meeting. He told them sell every stock he owned. All of them were quick to argue with him. Kennedy demanded silence.

“Any of you who do not sell my stocks by noon today, I will fire you. Now get out of here and get to work!”

A few weeks later on Oct.ober 18, the market went into a free-fall. The wild rush to buy stocks gave way to an equally wild rush to sell. Panic selling ensued over the next few weeks and the Great Depression began. But the Kennedy fortune had been preserved.

The Monday before Thanksgiving, one of Kennedy’s stock brokers came to his office. He was haggard, unshaven and looked like he had slept in his suit for weeks.

He said, “Mr. Kennedy, I have to ask you. How did you know it was time to sell all your stocks? Of all the people I know, only you said to sell. How did you know?”

Kennedy told him about the conversation with the elevator boy and then said, “When an eight-year-old boy tells me he and his grandma were making a fortune in the stock market, who is left to buy more stocks? His six-year-old sister and his great-grandmother? That eight-year-old gave me the best investment advice I will ever receive.”

Market clues

One can subscribe to a market service which collects information from market advisors every week and reports what percentage of those advisors recommend buying each commodity. When that percentage reaches 70% to 80%, it is time to sell. When that percentage reaches 30 to 20%, it is time to buy. I have only seen bullish consensus to 90% three times.

One does not need to pay a fee to know when “everyone” is buying or selling. Pay attention to what the market chatter is among the people in your daily sphere of activity, grain people, market advisory services, on-line, radio and TV.

For commodities, keep an eye on open interest (number of futures contracts on the books). When open interest approaches its largest long (or short) position for the past year or so, the market is probably about to turn.

This morning, CNBC’s Brian Sullivan showed a two-minute video of why fertilizer prices were terribly high and what impact it will have on food prices.

Now think about this: After all the CNBC watchers buy fertilizer futures and stocks of companies who manufacture fertilizer, who will be the next big group of fertilizer buyers?

Old duffers will tell you that when public news reports start talking about how high-priced something is, that will put the top in.

Do you want to be the last person to buy fertilizer on this rally?

Wright is an Ohio-based grain marketing consultant. Contact him at (937) 605-1061 or [email protected]. Read more insights at www.wrightonthemarket.com.

No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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