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Sancho Panza

Investors Most Bullish In Nearly 27 Years

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Mish Shedlock 10.1.14

'

Sentiment is not a timing indicator, but it is an indicator of problems. And bullish sentiment is greater today than at any time in the past 27 years according to Asbury Research.

Please consider When Being Bullish Can Become Problematic.

Investor sentiment is an important component of financial market analysis because it tells us what investors are collectively thinking. More specifically, when a certain type of investor gets either too bullish or too bearish on an asset, it usually means something important — that investors have become "off-sides" — and typically precedes a important trend reversal in the price of that asset.
One of the dozen or so data series that we track, the Investors Intelligence data, was particularly interesting this past week because the Bulls minus Bears subset of this series (blue line, lower panel of chart below) rose to an historic most bullish extreme that hasn't been seen since February 1987.
More simply stated, the stock market newsletter writers that have comprised this series since 1963 have not been this bullish in almost 27 years.

bullish+sentiment.png

The red highlights on the show that, at 46, this series as at an historic high extreme, and that similar or lesser extremes have coincided with or led some of the most important peaks in the S&P 500 (black bars, upper panel) in recent history including October 2007, April 2010, and 2011.

Sentiment can always get more extreme, and indeed that is how it reached higher levels than the stock market peaks in 2000 and 2007. Thus my caution "sentiment is not a timing indicator."

Nonetheless, history suggests those plowing into the market today are going to regret it.'

Read more at http://globaleconomi...zE8zuiCcPQgM.99

Edited by Sancho Panza

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I wish I could understand more than every other word of that. :(

More people are positive about shares rising than at any time in the last 27 years.

Sometimes in the past this had co-incided with the top (or near the top) of the market.

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I wish I could understand more than every other word of that. :(

I think he is saying.

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

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More people are positive about shares rising than at any time in the last 27 years.

Sometimes in the past this had co-incided with the top (or near the top) of the market.

I think he is saying.

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

Much obliged! :)

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There is an element of bootstrapping here- if everyone thinks things will go up they will pile in and things will go up. The only thing that might spoil things would be if the gravitational pull of reality were strong enough to drag things down again- but as luck would have it we have an anti gravity machine called QE- so reality won't be a problem.

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More people are positive about shares rising than at any time in the last 27 years.

Sometimes in the past this had co-incided with the top (or near the top) of the market.

Charts or it never happened.

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Same thing on a monthly chart going back to 1990. It could go up for a bit but it's not a buy.

Screen Shot 2014-01-11 at 01.41.38.png

Looking at that graph we could be at 1991 with rises all the way to 2000, I would have loved to have been around to buy that run....

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There is a chart called the Dow Jones bullish percent index. What this means is that 100 = every stock is on a buy signal and therefore only has one way to go, and 0 is the reverse. We're currently sitting at 90.

2014-01-11_1024.png

post-34990-0-17940600-1389432421_thumb.png

Edited by honkydonkey

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There is an element of bootstrapping here- if everyone thinks things will go up they will pile in and things will go up. The only thing that might spoil things would be if the gravitational pull of reality were strong enough to drag things down again- but as luck would have it we have an anti gravity machine called QE- so reality won't be a problem.

Thats a fundamentally incorrect view of Markets, if everyone thinks things will go up they fudamentally invest accordingly, likewise down

By definition as markets are supply , demand driven an excess of exhuberance in either bullishness or bearishness exhausts demand because they are already invested. Thats precisely why market tops form at extreme optimism and bottoms at extreme pessimism.

Its a numbers game of supply and demand, chuff all to do with gravity, everything to do with the reality of supply and demand

A market with one seller/buyer in a bull/bear market will drive the market in that direction through supply demand simply because everyone else will already be invested on the opposite side and there is no physical counter to offset the perceived minority opinion

The above absolute phsical transactional certainty doesnt assist in timing but fundamentally any market that is 100% bullish cant do anything but fall, just as any market 100% bearish cant do anything but rise

Edited by Maria Gorska

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'Market Bulls Should Consider These Charts http://advisorperspe...arket-Bulls.php

There has been a litany of articles written recently discussing how the stock market is set for a continued bull rally. The primary points that are common threads among each of these articles are: 1) interest rates are low, 2) corporate profitability is high, and; 3) the Fed's monetary programs continue to put a floor under stocks. The problem is that, while I do not disagree with any of those points, they are all artificially influenced by outside factors. Interest rates are low because of the Federal Reserve's actions, corporate profitability is high due to accounting rule changes following the financial crisis, and the Fed's liquidity program artificially inflates stock prices.

However, while the promise of a continued bull market is very enticing it is important to remember, as investors, that we have only one job: "Buy Low/Sell High." It is a simple rule that is more often than not forgotten as "greed" replaces "logic." However, it is also that simple emotion of greed that tends to lead to devastating losses. Therefore, if your portfolio, and ultimately your retirement, is dependent upon the thesis of a continued bull market you should at least consider the following charts.

It is often stated that valuations are still cheap. The chart below shows Dr. Robert Shiller's cyclically adjusted P/E ratio. The problem is that current valuations only appear cheap when compared to the peak in 2000. In order to put valuations into perspective I have capped P/E's at 25x trailing earnings as this has been the level where secular bull markets have previously ended. I have noted the peak valuations in periods that have exceeded that level.

The next chart is Tobin's Q Ratio. James Tobin of Yale University, Nobel laureate in economics, hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement value of the firm's assets. With the exception of the "tech bubble" we are near the peak of every major bull market in history.

One argument that I hear made consistently is that retail investors are just now beginning to jump into the market. The chart below shows the percentage of stocks, bonds and cash owned by individual investors according to the American Association of Individual Investor's survey. As you can see, equity ownership and near record low levels of cash suggest that the individual investor is "all in."<br data-mce-bogus="1">

Of course, with investors fully committed to stocks it is not surprising to see margin debt as a percentage of the S&P 500 at record levels also. It is important to notice that sharp spikes in this ratio have always coincided with market corrections of which some have been much worse than others.

Bob Farrell's rule #9 basically states that when everyone agrees; something else is bound to happen. The next two charts show the level of "bullishness" of both individual investors (AAII Survey) and professional money managers (INVI Survey). Surprisingly, professional money managers are more exuberant than individuals. It is interesting to note that the 8-week moving average of bullish sentiment for individuals has declined prior to the eventual peak in the market.

As I stated above - professional investors are just plain "giddy" about the market.

Lastly, an important chart I have shown previously, the deviation of the S&P 500 and the Wilshire 5000 from their respective 36-month moving average is at levels that have only been seen at four other periods previously.

As a money manager, I am currently long the stock market. I must be or I potentially suffer career risk. However, my job as an advisor is not only to make money for my clients, but also to preserve their gains, and investment capital, as much as possible. Understanding the bullish arguments is surely important but the risk to investors is not a continued rise but the eventual reversion that will occur. Unfortunately, since most individuals only consider the "bull case," as it creates confirmation bias for their "greed" emotion, they never see the "train coming."

Hopefully, these charts will give you some food for thought. Remember, every professional poker player knows how to spot a "pigeon at the table." Make sure it isn't you.

Why do I keep humming "Go on, take the money and run."'

Edited by Sancho Panza

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Thats a fundamentally incorrect view of Markets, if everyone thinks things will go up they fudamentally invest accordingly, likewise down

By definition as markets are supply , demand driven an excess of exhuberance in either bullishness or bearishness exhausts demand because they are already invested. Thats precisely why market tops form at extreme optimism and bottoms at extreme pessimism.

Its a numbers game of supply and demand, chuff all to do with gravity, everything to do with the reality of supply and demand

A market with one seller/buyer in a bull/bear market will drive the market in that direction through supply demand simply because everyone else will already be invested on the opposite side and there is no physical counter to offset the perceived minority opinion

The above absolute phsical transactional certainty doesnt assist in timing but fundamentally any market that is 100% bullish cant do anything but fall, just as any market 100% bearish cant do anything but rise

But in order for that extreme optimism or pessimism to exist there had to be a preceding phase during which prices are driven up or down- and this process is what I was pointing out- yes-eventually- a point is reached where the supply of greater fools/ pessimists runs out and the market will turn- but as long as there are some people who can afford to buy in or borrow to do so a bubble will continue to expand.

My point was simply that the belief that a given market is rising can act as a self fulfilling prophecy as people are willing to buy on the basis of future gains leading to an upward pressure on prices that then acts to confirm the original prediction that prices will rise- this can then act as a stimulus to further buying and so further rises.

As you point out this process stops when there are no longer any significant numbers of buyers or sellers around who wish to buy in or get out- this being the apex of the bubbles expansionary phase.

The question then is this - does the apparent willingness of the central banks to support asset prices via QE impact on the views held by those who may buy or sell those assets as to their future 'market' value- and I think the answer to this question must be yes.

So what QE represents is an attempt to bootstrap the economy by a form of sympathetic magic in which asset prices are artificially boosted and held up in the hope that the 'wealth' this creates will be converted from fantasy money into real money via investment in real production leading to real jobs in the real world.

The problem is that if this conversion from magic money to real world wealth creation does not take place we are worse off than ever, since that magic money now exerts claims of it's own on the dwindling supply of real world wealth it was intended to increase.

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Hopefully, these charts will give you some food for thought. Remember, every professional poker player knows how to spot a "pigeon at the table." Make sure it isn't you.

Why do I keep humming "Go on, take the money and run."'

Really very interesting, thanks for posting.

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