I have mentioned several times recently that bullish sentiment is extreme. If anything, "extreme" seems like an understatement as noted in Bullish Sentiment: Turning into a Stampede?
The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:Sentiment Not a Timing Indicator
- "Individual investors (AAII poll)—most bullish in six years
- Newsletter advisors (I.I. poll 20-week average)—most bullish in seven years
- Futures traders (trade-futures.com poll)—most bullish in four years
- Mutual fund managers (% cash)—most bullish ever
- Hedge fund managers (BoAML survey)—most bullish ever
- Economists (news-org polls)—unanimously bullish
- Top global strategists (three national year-ahead panels)—unanimously bullish
- Even most 'bears' on the economy are bullish on stocks because of inflation!"
Patterns of investor psychology are not new. In fact, they repeat themselves. Consider this quote in 1960 from Richard Russell of Dow Theory Today:
"Psychology during bear market rallies seems to follow a fairly consistent pattern. 'During secondary reactions [upward] in bear markets,' wrote [Robert] Rhea, 'it is a fairly uniform experience for traders and market experts to become very bullish.'"
Those words are as true today as they were 50 years ago.
Sentiment is never a timing indicator because things always go further in both directions than people think.
Regardless, I am sticking with my assessment this is not a good time to be long the market. In case you missed them, I gave my rationale in a couple of recent articles.
- Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think
- Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?
Please note that "not a good time to be long" is not the same as a "good time to be short". It may or may not be a good time to short.
However, the longer the "Bullish Sentiment Stampede" lasts, the better the odds. Finally, if you missed the rally and are thinking of getting in now, I have a one word suggestion: "Don't".
Mike "Mish" Shedlock
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