The retailers continue their bullish posturing and quite frankly they have been 100% correct over the last 3 months. Call it the money printing effect I guess. The retail crowd believe they have little to fear because if stocks ever start to fall, Zimbabwe Ben will simply print more money and debase the dollar further. This Bernanke Put is much more valuable then the old Greenspan put which only meant lower interest rates.
Generally, when retail sentiment is this high, you do not make money initiating new stock positions. It is usually best to let the market have a correction, which then scares the retailers back into cash before buying more stock. However, the AAII sentiment survey is not full proof as we have seen over the last few months, but the odds are on your side that the market should at least pause before another leg higher. One last thing we should consider is the seasonality of December, which has always been quite favorable for stocks. You rarely see steep sell-offs in December as the major institutions and hedge funds start closing their books to lock in returns.
Overall, I would say caution is warranted, especially when you hear people like Marc Faber say they expect a market correction in the short term.
Here is a short term chart of AAII sentiment
click charts for larger image
Next up is a chart which compares AAII bullish sentiment to the SP 500
Finally, here is a chart which compares AAII bearish sentiment to the SP 500.
Black Swan Insights
Excellent charts
ReplyDelete