Should you fight the Fed or go with the crowd?

Michael James McDonald is a stock market forecaster, author, and former senior vice president of investments at what is now Morgan Stanley. He is a long-time proponent of the contrary opinion theory and of measuring investor sentiment in predicting price direction. His first book, A Strategic Guide to the Coming Roller Coaster Market, was published in June 2000, three months before the peak of the dot-com market. The cover read, “How a new model of the stock market predicts the end of the 18-year bull market (1982-2000) and the beginning of a new era.” The “new era” was supposed to be a long-term (roller coaster) trading market, which did indeed occur between 2000 and 2009. A second book, Predict Market Swings With Technical Analysis, was published by Wiley and Sons in 2002. Then, on August 31, 2010, in a Seeking Alpha article titled, “The 10 Year Trading Range Is Over – The 'Final Stampede' Has Begun,” he predicted the end of the 10-year trading range and the beginning of another long-term bull market, which did come to pass. He says, “It has long been known that 50% or more of a stock's price can be driven by the emotions of fear and greed alone. A universal warning sign is when 'too many' investors expect the same thing. When 'too many' investors expect a stock to go up, it generally goes down – and vice versa. This simple truth has been observed and commented on by every great investor for the past 100 years. The key is to have metrics that measure when 'too many' investors expect something. That's what the Sentiment King has developed over the years. “Through his company, Sentiment King, he continues to study and measure investor psychology to successfully predict key stock trends and help others spot them, too.”