“Mish” posted the latest chart from the Investor’s Intelligence Survey, and it shows that bulls are back up to 50% and bears have hit a new low for the year at 16%. (You can directly access two years of data using the chart tool at Schaeffer’s Investment Research). He also noted that bears have only been this scarce three times in the last 25 years.
It seems that there are not enough bears in the market, but bullishness has also been higher in the past two years: 52% at the end of August and 56% in December, 2007 (right after the bear market began).
Adding further contrast to this apparent extreme scarcity in bears, Bernie Schaeffer, veteran options expert, appeared on Nightly Business Report this past Friday and provided some statistics suggesting that participation in the market is very low. He began by proclaiming that “the market is in excellent shape…It’s a picture-perfect technical rally off the bottom in March.”
“Investor sentiment is counter-trend. Investor sentiment is not believing the rally off the bottom. Lots of examples of it: The Time magazine cover saying it’s time to retire the 401k. A Newsweek cover called Boom and Gloom that basically says the rally is bogus. This is an indication there is sideline money that can power the market higher. No inflows into equity mutual funds this year. Zero. Three hundred billion into bond funds. Ten billion into short-selling funds. People have still not jumped on the bandwagon.”
(Click here to watch full 4-minute interview)
I was a bit surprised that (net?) flows into equity mutual funds are zero this year, but the overall lack of participation in the market is confirmed by the persistence of low trading volume throughout much of this year’s rally. Technicians frequently cite this low volume as reason for skepticism. I have also noted the light volume accompanying momentum stocks like GOOG.
Schaeffer gave three simple recommendations aligned with his sentiment analysis. Obviously, I only like one of them:
- XRT (SPDR S&P Retail ETF): heavy skepticism about the health of the consumer
- GLD (SPDR Gold Shares): persistent skepticism and worries about a bubble (Tim Iacono wrote an excellent post today noting that if gold is in a bubble, it is a “recurring bubble”. Bill Fleckenstein also notes that the real bubble is in gold skepticism.)
- TLT (iShares Barclays 20+ Year Treasury Bond): a hedge against XRT and GLD
Over two months ago I noted how bulls and bears seem to rely on contrarian arguments to support their beliefs about future market direction. It seems market sentiment indicators are as mixed as ever.
Be careful out there!
Full disclosure: long GLD, TBT, GOOG
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