Investor bullishness looks ‘horrifying,’ according to this chart December 12, 2013, 11:24 AM SHARE:MORE EmailPrint
****Note Quote; " advisors.... Ignoring their own indicators" *****
Investors Intelligence A couple of sentiment surveys out this week show a dramatic divergence in investor bullishness. While one doesn’t seem to get the heart beating too wildly, the other sees “horrifying” optimism on the loose.
The S&P 500 SPX is set to close the year out with the best gain since 2003. A clutch of investment banks have been forecasting more modest gains next year (not hard when we’re staring at 25% gains for 2013), with few daring to put a S&P top for next year much past 2,000.
On Thursday, the American Association of Individual Investors survey showed investor bullishness for the week so far of around 41.3% (1.4 points off last week) with bearishness at 25% (2.5 points off last week). That’s certainly on the bullish side, though hardly dramatic: The long-term averages are 39% and 30.5%, respectively. On a historical basis, bullish sentiment maxed out at 75% in 2000, the crash year, while in 1987, bearish sentiment dropped to a low of 6%.
But bullishness is flying off the charts in a survey from Investors Intelligence released a day earlier. The number of bullish advisors rose to 58.2% in the latest week, from last week’s 57.1%, and marking another new high for 2013. That number has now topped the 57.3% level from April 2011.
As for bears, Investors Intelligence said that level was stuck at 14.3% for the second week running and is the lowest since 13.6%, recorded on March 20, 1987.
Here’s the kicker: II said it’s clear from this week’s figures that advisors are too afraid to express a bearish view on the market, with many “even ignoring their own indicators.”
II went a step further to get their bull-runneth-over point across, showing a sentiment chart (pictured above) in which the 4-week moving average of bullish advisors is divided by bullish plus bearish advisors. This chart (above) “reflects those who have a committed view and ignores the less opinionated correction advisors.”
“This particular indicator is at a horrifying level, a record high for the decade and easily exceeding that of the 2007 bull market top. Out of the previous twelve instances over the past ten years when this indicator formed a peak in overbought territory there has been just one weak signal and even then a correction came, just several weeks later. Each correction was of the magnitude of at least 5%,” says II.
The indicator is “fast running out of overhead room” and when it reverses, which II predicts will come in the weeks ahead, it will “mark a top of significance.”
AAII notes that its own survey has a backward-looking tinge to it. It points out in a note that market sentiment often “directly reflects where the market has been, not where it is going,” and even extremely bullish levels of sentiment come after strong market run-ups when investors are fully invested in the market.
TD Ameritrade, meanwhile, reportedly noted earlier this week that its investor sentiment index in November was up for a second straight month, hitting the second-highest level in its four-year history.
The II survey left an impression on some. Greedometer says if you can’t see the bubble brewing you are:
a long-only fund manager someone who sells to long-only fund managers someone who works in a senior position at the Fed visually impaired a combination of the above – Barbara Kollmeyer
Barbara Kollmeyer reports on U.S. markets from Madrid. Follow her @bkollmeyer
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