IS THE EXTREME BULLISHNESS CAUSE FOR CONCERN?
By Carl Swenlin with Decision Point
Sentiment readings were very bullish across a range of indicators this week. To begin, Investors Intelligence Advisor Sentiment had its highest percentage of bulls (58.8) since the October 2007 market top.
The American Association of Individual Investors poll had the highest percentage of bulls (63) since October 2004, and the lowest percentage of bears (16) since October 2005.
Finally, the National Association of Active Investment Managers (NAAIM) shows that on average they are 81.83% invested. This is in the high end of the range and shows that these managers are quite bullish.
While high levels of bullish sentiment among advisors, investors, and money managers usually occur at market tops, market tops do not always occur when sentiment is very bullish. Sometimes people respond to the obvious and correctly align their market posture with the price trend. In situations like this we have to wonder whether or not they are wrong.
Bottom Line: An excess of bullish sentiment is a caution sign and should cause concern because such sentiment peaks are often followed by price corrections, if not bull market tops; however, we do not use sentiment as a timing tool, just a indicator to help paint a picture of the market environment. So far we have no indication from our trend-following models that there are major problems ahead.
From the Kitchen Table: WkEnd Update
Confidence Ratios:
Stock/Bond & Stock/$USD ratio prefers Stocks = Recent Buy Signal = Sept 2010
Would not add money to Stocks at this time–But would evaluate STOPS–Caution
Bond/Bond ratio prefers High Yield = High Yield / HYG is losing upside MO
While LT Bonds are crashing–High Yield is a Weak Hold–Money is moving out of Bonds. Aggressive Traders might/could consider TBT which gave Buy signal in OCT and is following thru with strong upside MO. REM– holding Bonds is a solid risk reduction strategy–selling Bonds at a profit is also GOOD!
Commodity/$USD prefers Commodities = Examples include these ETF’s DBA, DBB, USO
Whether Oil is doing the Tango or the Pasadoble the IT Trend is UP.
Gold/Stocks prefers Stocks = Stocks have outperformed Gold these Last 3 Months!!
Old Man Gold still moving up But the Gold/$USD ratio is moving off to the side/ST relative Trend = Flat
I have posted here previously an upside target for the S&P500 at 1278
that forecast still looks good thru the first few of wks of Jan 2011
$USD forecast–ST-Trend = Up/Flat waiting for a catalyst to confirm IT-Trend direction and the “Pile In” signal–resistance for UUP 23.50-23.75
A Strong Upside move in the $USD might/could/maybe “Temper” Investors/Traders appetite/pocketbook for Risk assets like Stocks/Commodities and Gold.
“The Dollar will make you Holler” was posted here at TPC in Infamy.
While there is a lot of talk about the Stock/$USD trade it is important to consider/recognize other variables that would influence the $USD on a ST basis.
But my LT-analysis is that a “Week $USD” is in the best interest of the US Economy/Business and Labor and I’m sure Banzai Ben will follow thru.
Remember the US Trade deficit SUBTRACTS from GDP growth a “Strong Dollar” adds to that deficit!
Pundits see “Green Shoots” in the US Economy
Unfortunately I see more “Green Poop” in the US–
I tell you man– did you hear Gross and Jeremy and Whitney singing “The Eve of Destruction”
Overall a “Good Year” trading with a few/min losses along the way
I post these positon guides every couple of wks only at TPC
Remember: Positon guides are NOT recommendations to Buy or Sell Stocks/Bonds/Commodities
Reminds me of the summer of ’07 when I heard on CNBC, I think it was Pisani, that between private equity funds taking companies private and public companies buying back their own stock “there just isn’t enough stock to be bought” and that’s why prices continued to climb. Increasing rationalizations for paying up should set off alarm bells.
Separately, I think March 2009 is the Woodstock of the 21st Century because every guest who comes on CNBC claims to have been properly positioned for the bottom.