According to the Bank of America, coming into this week their clients have been net sellers of stock for 12 consecutive weeks. This kind of relentless bearishness can’t be ignored; against the backdrop of an impressive 12- week rally, it lends credence to the notion that individual investors are a great contrarian indicator. Interestingly, the part of the American Association of Individual Investors (AAII) Survey that continues to scream for attention is the neutral column. While bullishness is significantly below the historic average, bearishness is well below its historic norm as well. Perhaps it’s just complacency or indifference.
Individual Investor Sentiment |
Historic |
Change |
Current |
Bullish |
38.6% |
-4.3% |
27.8% |
Neutral |
31.1% |
+0.9% |
47.3% |
Bearish |
30.3% |
+3.4% |
24.9% |
High-Yield
High-yield was not only in trouble earlier in the year, but it also served as a canary in the coal mine of the financial space, which began to brace for a slew of defaults on loans made to companies in the oil patch. Once those began, the question was about contagion and whether the other areas previously deemed safe were vulnerable.
While there’s no doubt there will be a slew of bankruptcies in the oil patch, it’s looking like crude has made the low of the year and hints at wanting to rally much higher. Brent Crude closed near the high of 2012 yesterday, right at a breakout point that could lift to $50.00 a barrel.
Of course, there is always that Chinese influence on everything from gold to iron ore to even the U.S. stock market. Iron ore surged past $60 a metric ton on a spike in China’s demand, which had hit the pause key after building too much inventory.
There are a lot of interesting trends in this market, and they can’t all coexist at the same time forever.
However, one thing that might help the stock market is when it’s up, the Bear-dominated headlines read:
‘Market Bullishness Move Sign of Correction Soon’
When the market is in trouble and being hit every day, the headlines read:
‘Market Bearish Mood Signals Major Correction Soon’
Conclusion
As for that age-old question, it is without a doubt that it is better to be hated when it comes to stock market rallies. I am going to be very nervous when everyone climbs on-board.
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