Why Google search spikes could be a good stock market indicator

Over the past few weeks, the All Ordinaries Index has fallen and risen more than 5%, which highlights how the masses tend to react emotionally to the market. Benjamin Graham, the father of value investing once stated that 'an individual who cannot master their emotions is ill-suited to profit from the investment process'.

When the market is volatile and investors are emotional, there are huge spikes on Google related to search terms about the market. For example, since the start of January, the term 'stock market crash 2022' has spiked eight times.

On six of those occasions, the increase in searches occurred when the market was at or near a bottom and about to turn to trade up. In my opinion, Buffett's advice about buying in doom and selling in boom seems validated by these Google searches.

There is an old saying that investors typically buy at the top and sell at the bottom and when you compare searches in Google to market highs and lows, you start to see how this statement rings true.

While the research is not conclusive, it certainly raises an interesting question. Can you predict the stock market based on what others are searching in Google? From the anecdotal research, it may be a good indicator to watch, as the masses generally act emotionally, which often leads them to make poor decisions.

American playwright Diane Grant once said that 'it's better to walk alone than with a crowd going in the wrong direction' and when it comes to the stock market, walking alone and carving out your own path is far more profitable and less risky than following the crowd.

Choosing to walk my own path by taking the contrarian view to the masses is certainly the preferred way and anyone with a little bit of knowledge, and common sense can join me.

What are the best and worst performing sectors this week?

The best performing sectors include Financials up more than 1% followed by Consumer Discretionary and Industrials, which are both down more than 1%. The worst performing sectors include Utilities and Energy, which are both down more than 5% followed by Information Technology down more than 4%.

The best performers in the S&P/ASX top 100 stocks include Bank of Queensland up more than 10% followed by Westpac and Qantas, which are both up more than 5%. The worst performing stocks include Lendlease and REA Group, as they are both down more than 10% followed by Pilbara Minerals and Cochlear, which are both down more than 8%.

What's next for the Australian stock market?

On Monday the All Ordinaries Index fell just under 1.5%, while the remainder of the week has been relatively flat with only a slight fall.

The stock market is a constant struggle between the bulls and the bears, and this week the bears have been winning although this month, it is the bulls that have been more dominant overall. This is important because right now the bulls are being challenged and apart from Monday, they are slightly stronger but for how long?

As I mentioned last week, one week up, even a strong one doesn't prove anything, and this week has shown that given the market has been slightly bearish. If the bears come back in force on Friday and into next week, then it is possible the low in June of 6581 points will be challenged and more likely broken, with the next level of support at 6192 points.

That said, if the market can hold and start to rise into next week, we may see a sustained rise over the coming months. Given how the market has unfolded over the past couple of months, we need to assume the market is bearish and will continue to be until it confirms otherwise. Again it is wise to be cautious, have an exit strategy and be selective in any stocks you might purchase.

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