• 545 days Will The ECB Continue To Hike Rates?
  • 545 days Forbes: Aramco Remains Largest Company In The Middle East
  • 547 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 947 days Could Crypto Overtake Traditional Investment?
  • 952 days Americans Still Quitting Jobs At Record Pace
  • 954 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 957 days Is The Dollar Too Strong?
  • 957 days Big Tech Disappoints Investors on Earnings Calls
  • 958 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 960 days China Is Quietly Trying To Distance Itself From Russia
  • 960 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 964 days Crypto Investors Won Big In 2021
  • 964 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 965 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 967 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 968 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 971 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 972 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 972 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 974 days Are NFTs About To Take Over Gaming?
Elliott Wave International

Elliott Wave International

Elliott Wave International

Elliott Wave International (EWI) is the world's largest market forecasting firm. EWI's 20-plus analysts provide around-the-clock forecasts of every major market in the world via…

Contact Author

  1. Home
  2. Markets
  3. Other

Snapchat and The Disappearing Bears in The Stock Market

See what happens in the financial markets when the bears vanish

If Inspector Gadget or Maxwell Smart had lived in the digital age, their bosses would have used the smartphone app Snapchat to deliver their secret missions.

Snapchat is a popular app with about 8 million users that lets your smartphone send a photo that self-destructs seconds after your recipient views it. As of September 2013, users were sending about 350-400 million vanishing messages a day -- which compares with the 127.5 million shares that changed hands in the Dow on Jan. 27, 2014.

But when Evan Spiegel, the Stanford student who came up with the idea, unveiled it to his product design class in 2011, his classmates gave it a thumbs-down. Disappearing photos? Who will use it? Little did his classmates know how the app, originally called Picaboo, would go on to capture the attention of teenagers and young adults. And even a few older folks who want to connect with them, such as 51-year-old Senator Rand Paul, who recently signed up to woo younger voters.

The idea of the disappearing photo applies beautifully to the situation in the stock market today. Pessimists on stocks are disappearing quickly. And so are bearish analysts. Not in 10 seconds, but they are still doing a version of a Snapchat disappearing act. Here's how The Elliott Wave Financial Forecast describes it (emphasis added) in this excerpt from our just-released 2014 State of the Global Markets report:

Rydex Money Market Funds Index Chart versus DJIA

Investor Psychology
From The Elliott Wave Financial Forecast, December 2013

Our list of rare optimistic extremes is growing. This chart shows that advisors are now more optimistic about the stock market than they've been in 26 years. The middle graph displays the bull/bear ratio from the Investors Intelligence weekly advisors' survey (InvestorsIntelligence.com). Bullish advisors outnumber bearish ones by a four-to-one margin for the first time in over 2½ decades...

And it's not just advisors. Assets invested in bull funds in the Rydex family of mutual funds is 5.3 times the assets in bear funds, an all-time record ratio. The bottom graph shows the total assets in Rydex's government money market fund, which just dropped to a new all-time low on a daily and 5-day basis. This record low in money fund assets indicates a record desire to own stocks and bonds and a record disinterest in investment conservatism. These measures are as bell-ringingly bearish as any we have shown in the 14-year history of this newsletter.

But what does it mean for the markets when most of the bears capitulate to bullish optimism? Not exactly what you might think. Here's how the article continues:

The Nov. 11 issue of The Wall Street Journal delivered another key piece:

Stocks Regain Broad Appeal
Mom-and-Pop Investors Are Back
The buyers, many with investment portfolios that were scorched during the market meltdown, are climbing aboard a ride to new highs in the Dow Jones Industrial Average.

The article cites several "propelling" forces behind individuals' re-entry that are actually classic by-products of a terminating mania. The main one is that a heightened state of optimism causes people to buy simply because prices are high and rising. The WSJ article cites the case of a 65-year old real estate appraiser who returned to stocks "when he saw a market pundit predict the Dow, up 167.80 on Friday, could hit 20,000 this year. 'I still think there's huge upside in the stock market,' he said. 'I don't want to miss out.'"... A Citigroup corporate finance expert illustrates that professionals are not immune to the bullish vibes: "This year feels like it did earlier in my career, when I had the optimism to say, 'I'm really going to have a retirement.' It feels a lot better now."

Of course it does; that's what happens near a top. The former remorse and inexplicable negative feelings have completely vanished, which means the uptrend that started five years ago should be exhausted.

Is that what you expected to read?

Elliott Wave International has been sending out pictures (that is, charts) of a bearish market for a while now -- and they do not self-destruct in 10 seconds, a month or a year. No Snapchats of a bear about to turn bullish here. And if you want to get EWI's take on Snapchat itself, read on:

BACK TO THE VANISHING POINT FOR TECH
From The Elliott Wave Financial Forecast, December 2013

With the share price of mainstream technology companies such as Google, Netflix and Priceline hitting new all-time highs in November, the dot-com revival is closing in on its original late-'90s insanity. Among the many resurfacing symptoms of the old fever are reports of "eye-popping" "vanity metrics." The term vanity metrics refers to late 1999 and early 2000 valuation methods under which the standard devolved from price/earnings to price/sales to price/click ratios.

Reuters reports that "valuations for high-flying startups" are once again "hitting nosebleed levels," as "the obsession with 'eyeballs,' or raw numbers of website visitors that defined the dot-com boom of the late 1990s," is back. Reuters cites Snapchat as a prototypical example. Snapchat is a startup company based on an app that allows smartphone users to send pictures that vanish after a few seconds. The company claims users are sending 400 million "snaps" a day, but it refuses to explain exactly what constitutes a snap. It also has no profits or revenues. Nevertheless, the company's 23-year-old founder turned down a $3 billion buyout offer from Facebook "based on hypothetical revenue." Financial writers said the decision made sense because Snapchat can get more from a Chinese e-commerce company or in an IPO.

We disagree and think this kid will be kicking himself for the rest of his life. The company may indeed get lucky, but we've been down this road before. The vanishing picture app may someday become a metaphor for Silicon Valley's last hurrah.

 


Global Market Report

You can get more of this kind of clear-eyed analysis in EWI's new annual report, The State of the Global Markets -- 2014 Edition. EWI is offering some of the choicest selections culled from the 50-page report to Club EWI members.

Sign up to get access to The State of the Global Markets -- 2014 Edition >>

This article was syndicated by Elliott Wave International and was originally published under the headline Snapchat and the Disappearing Bears in the Stock Market. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Back to homepage

Leave a comment

Leave a comment