The sentiment signals are starting to stack up against the bulls. Last week Mark Hulbert at MarketWatch reported that Advisory bullishness was “dangerously high”. He reports that bullishness hasn’t been this high since before the 2007 market highs:
“Based on the several hundred investment advisers I track, I’d have to say that bullish sentiment is approaching dangerously high levels. Consider the Hulbert Stock Newsletter Sentiment Index (HSNSI), which represents the average recommended stock market exposure among a subset of short term stock market timers tracked by the Hulbert Financial Digest.
It currently stands at 62.8%, up from 13.8% just one month ago. That’s an awfully big jump for so short a period of time, especially considering that the Dow Jones Industrial Average rose a modest 4.4% over this period.
Also worrying is that, with but one exception, the HSNSI is now at its highest level since early 2007, more than three years ago.”
That one exception came in early January just before the market rolled over 9%.
In addition, David Rosenberg noted just yesterday, that portfolio managers are now sitting on near-record low cash levels:
“as charts below from the ICI illustrates, portfolio managers have been so nervous to miss any up-moves that they have run down
their cash holdings to 3.6% of assets from nearly 6% a year ago — the largest decline in 19 years. Equity cash ratios are back to where they were in September 2007, just as the stock market was hitting its peak.”
This new found bullishness by portfolio managers and advisors could be seen as a contrarian sign of things to come.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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