SMALL INVESTOR BULLISH SENTIMENT SOARS TO 3 YEAR HIGH
Small investor sentiment has soared to new 2010 highs and hit levels not seen since August 2009 when stocks had rallied 50% off the March 2009 lows in a near straight line. To the small investor there is little that can go wrong with equities now. We have seen just six prior readings approaching 50% in the last three years and in four of those cases stocks traded lower by an average of 14% within the next two months. The two exceptions to the rule were during the 2009 bull market when stocks were invulnerable. Charles Rotblut of AAII added some more color to today’s data:
“This was the third consecutive week that bullish sentiment has made a big increase. Since falling to 20.7% on August 26, bullish sentiment has rebounded by approximately 30 percentage points. At the same time, bearish sentiment has plunged by approximately 25 percentage points.
Two factors are at play. The first is the market’s recent rebound. The rise in stock prices is giving some investors hope that a short-term bottom in the market has been formed. The second is the reduction in chatter about potential deflation and a double-dip recession. Though the economic data has not been great, it has been good enough to give some assurance that recovery is continuing.”
The Investor’s Intelligence survey continues to lag the AAII poll substantially. At just 36.7% the reading is far less bullish:
Sources: AAII, II
Will be interesting to see if the VIX goes down significantly in the coming days, while at the same time companies such as UPS, FEDEX and orgs like ECRI tell the other side of the story.
These optimists are thick skinned.
The financial crisis of ’08 erases a decade of gains in the S&P. The rally of ’09 recoups about 60% of these losses. The bulls become believers.
The end of April and the beginning of May knock the S&P on it’s rear while stealing more than 2000 points. The ensuing rally has now taken the S&P back about 60% again. The bulls again become believers.
The age old homage is ‘fool me once, shame on you. Fool me twice, shame on me’.
There is no mention of a third deception in this often said expression. If the bulls get tricked twice into believing that they are free to stampede, there may be very few to believe a third time – this may be the end of the road. The point where very few are left questioning the direction of the market.
On the flip side, I can say that I have been caught off guard by the veracity of both of the rallies I’ve mentioned. I’ve definitely Lost my fair share of cheddar picking tops. I can say that I may have been fooled twice as well and if this rally has legs above the April highs, I may have to reevaluate my market views.
A crossroads here perhaps?
When the Investor’s Intelligence poll gets to 45% the place to be is short these last couple of years..
I admit this market as far from clear but bears seem to anticipate a return to the magic level of 666 which, in my opinion, will not happen at this stage. Some stocks are very cheap and you shouldn’t expect that they will be given to you for free.
Another technical indicator, put/call ratio as measured by the CPC index, indicates weakness at Oct expiration. As a short-term timing indicator, I’ve noticed that daily high readings over 1.20 during the current expiration week often preceed strength into the following months expiration week. The last time this occurred was in August.
This conforms with my long-term outlook that 2010 is repeating 2007 where the final high was made on Oct 11 with a down expiration week.
“investors”???, nah, just lazy momentum chasers all looking at the same key technical levels and obsessing over every macro data point. Hate the market at 1030, love it at 1130. Crazy.
I would love to see an overlay of the sentiment graphs and the S&P itself.
http://2.bp.blogspot.com/_goypolxEFd4/TJKZpfMMMyI/AAAAAAAAH5Q/xLypGTIaNLY/s1600/AAII+%25+Bullish.png
here it is…
Technical indicators are almost meaningless in this market. So much depends on what the government does, and whether we get a major piece of positive or negative news from somewhere in the world. There is unfortunately, no indicator for these news releases.