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Five reports
suggest that contrary to popular belief, the "crowd" -- investors,
traders, and market advisors -- is bullish (and invested):
Make No
Mistake... Institutional Investors Are All In"
(Business Insider)
According to
Morgan Stanley, there's no question about the state of big investors
sentiment. As they put it, investors are "all in" on this market
"Hedge
Funds Capitulating Buy Most Stocks Since '10 Amid Gain" (Bloomberg)
Hedge funds
trailing the Standard & Poor's 500 Index for the last five months are giving
up on bearish bets and buying stocks at the fastest rate in two years.
A gauge of
hedge-fund bullishness measuring the proportion of bets that shares will rise
climbed to 48.6 last week from 42 at the end of November 2011, the biggest
increase since April 2010, according to data compiled by the International
Strategy & Investment Group. The Bloomberg aggregate hedge fund index
gained 1.4 percent last month, lagging behind the Standard & Poor's 500
Index by 2.65 percentage points.
Money managers
struggling to catch up with the gains have contributed to the rally that
pushed the S&P 500 up 27 percent since October as economic reports beat
estimates. Market bulls say they are a continuing source of cash that can
move stocks higher. Bears say capitulating hedge funds are further evidence
that equities have risen too far, too fast as economic growth remains
sluggish, warning that the pool of potential buyers is being depleted.
"A Euro, A Yen, & Gisele
(by TnRevolution)"
(Slope of Hope)
The below chart
is from decisionpoint.com. Take note that the Rydex
[A financial services firm
whose mutual funds and ETFs are favorites of more active traders]
asset ratio is currently breaking out to new highs over the past 10 years,
which shows an extreme amount of bullishness on the part of investors.
Carl Swenlin of decisionpoint.com states, “Digging
deeper into the numbers, … Money Market Assets
are near 10-year lows, which indicates that Rydex
investors have very little money on the sidelines with which to make an
additional commitment to bullish positions. Also, Bear Fund Assets are near
10-year lows, demonstrating that Rydex investor expectations for bearish outcomes is very low. These
bullish attitudes are bearish for the market because it appears that there
are very few resources left to fuel a continued price advance."
"Average
Investors May Finally Be Lured Back Into Stocks" (CNBC)
Bullish
sentiment among the most active clients of Charles Schwab hit its highest
level since the current bull market began, according to a recent survey by
the firm.
The jump in
optimism from this group may signal the less active crowd will soon follow,
propelling the rally to a fourth year, market analysts said.
Fifty-one
percent of individual investors who trade frequently are now bullish,
according to the Charles Schwab Active Trader Sentiment Survey, the highest
level since they began surveying these clients in April 2008.
"Mark
Hulbert: Market’s Long-Awaited Correction at Hand" (MarketWatch)
Commentary:
There is too much bullishness and complacency
The stock
market’s long-awaited correction appears to have begun.
I say this
because the market’s successful assault on Dow 13,000 brought a number
of eager bulls out of the woodwork — so much so, in fact, that even
though the Dow Jones Industrial Average has now fallen back to just above
that 13,000 level, there is a lot more bullish sentiment than existed just
two weeks ago.
That’s
worrisome from a contrarian point of view.
Consider the
average recommended stock market among a subset of short-term stock market
timers tracked by the Hulbert Financial Digest (as measured by the Hulbert
Stock Newsletter Sentiment Index, or HSNSI). After
the Dow’s initial failure in late February and early March to burst
through the 13,000 level, this average dropped by March 9 to as low as 17.6%
— which meant that the average market timer was keeping more than 80%
of his equity portfolio out of the market.
Today, even
though the Dow is less than 1% higher than where it stood then, the HSNSI
stands at 42.1%. So a tiny net increase in the market has led the average
market timer to increase his or her equity exposure by 25 percentage points.
That’s
not reminiscent of the veritable Wall of Worry that bull markets like to
climb.
But then again,
maybe this time is different, and the stock market doesn't need addiitonal buyers, cash, or good news to move higher.
No doubt some
bulls will argue that mom and pop investors have yet to join the party. Given
that a great many of them are in or near retirement and have far fewer assets
than they need to survive as a result of multiple burst bubbles, a global
financial crisis, chronic bad advice, and a brokerage community that likes to
rip their eyeballs out, I'm not sure I'd put much faith in that.
Of course, I
could be wrong. Perhaps I am the greater fool.
Michael J. Panzner
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