One consistent pattern in the financial markets is that average investors are unwilling to buy what a seasoned investor views as compelling. They are afraid that a depressed asset will not recover for many more years, and will likely continue to decline in value. Most people prefer to buy something which has recently climbed substantially, even if it has become dangerously overvalued. They perceive its price increase as being a validation of its intrinsic superiority. Similarly, an asset which has become exceedingly oversold is seen as being inferior because its price decline emotionally confirms that it is undesirable.
Some of the greatest trading opportunities occur when price is disconnected from reality. Commodity shares and emerging markets would be the ideal candidates as the most disliked asset class these days. Some of the biggest winners during the past several weeks have been those securities which had dropped the most during the previous half year. This is typical behavior during the final year of any important transition from a multi-year equity bull market to a major bear market, when a rotation into those assets which have not yet participated in the uptrend typically occurs.
The fair valuations for most commodity producers are significantly above current prices, while fair prices for high-dividend securities stand substantially below their present valuations. The shift from the recent best performers to the commodities will be choppy and will continue to be met by skepticism. High-dividend bulls refuse to shift their stance and commodity bears remain similarly head strong. However, as these transitions intensify and become more obvious, analysts and media will feel more and more compelled to jump aboard the bandwagon. Almost no one likes to be among the earliest to recognize a critical change in trend, while most are repeatedly late to any financial party.
Always keep in mind that before each market rally fully gains force, the market will shake out as many long-side participants as possible and will encourage as many traders as possible to sell short. It will always act in whichever manner cause the majority of investors to lose money.