Strategists Follow the Market Higher

The first chart below shows the consensus recommended equity allocation from Wall Street strategists going back to 1997. As shown, strategists completely missed the turn in equities in early 2000, as they increased their recommended stock allocation all the way into mid-2001 when the market was well off of its highs. Analysts were loathe to acknowledge the bull market from 2002 to 2007 as their recommended stock allocation trended lower all the way into early 2006. It wasn't until the last leg of the bull market that analysts as a whole finally started increasing their recommended stock allocation.

The consensus did begin to turn negative on stocks a little before the market's peak in October 2007, and then they threw stocks out the window on a weekly basis all the way until May 15th of this year. On May 15th, the consensus recommended stock allocation hit 51.3%, which was the lowest level in more than a decade. By that point, the S&P 500 had already rallied 30% from its low two months earlier. Since May 15th, the recommended allocation has risen to 55.6%, which is the highest level since December 2008, but it's still below the 57.9% level it was at just before the Lehman bankruptcy.

click to enlarge

Comments

[Larry House]

Interesting revelation. Buy good companies that you are willing to own for years--not minutes. Don't listen to pundits or market prophets. False prophets are plentiful.

2009 Aug 19 01:38 PM

[Mad Hedge Fund Trader]

bvm. There has been a lot of chatter in the blogosphere lately about the eerie and frightening similarities between our current global stock markets and those of 1937. Look at the great chart below, which I obtained from the ace quants at charlesnenner.com/. After a ferocious dead cat bounce and a tortuous period of sideways consolidation, we break down to a final Armageddon sell off. Top technical analyst, Louise Yamada, has also been highlighting this risk, and many big hedge funds are positioned accordingly. I believe that markets will always do what they have to do to screw the most people, and this would be it in spades. Imagine trying to trade the tedious 500 point range for six months, only to see the indexes drop by half and volatility double. You can kiss another generation of traders goodbye. Whatever you do, don’t short volatility here in the mid twenties in mid August.

2009 Aug 19 03:19 PM

[tommy u]

notley and hindenberg omens aside, this market is going 1500-2000 points higher quicker than most can position for. Afterwards , your scenario and Louises may be the battleplan we need to respect. Everybody plays the fool, no exception to the rule... Permabears totally frosted in the process will see if they have what it takes to still be standing when the world outside finally mirrors their worst nightmares .


On Aug 19 03:19 PM Mad Hedge Fund Trader wrote:

> bvm. There has been a lot of chatter in the blogosphere lately about
> the eerie and frightening similarities between our current global
> stock markets and those of 1937. Look at the great chart below, which
> I obtained from the ace quants at charlesnenner.com/. After
> a ferocious dead cat bounce and a tortuous period of sideways consolidation,
> we break down to a final Armageddon sell off. Top technical analyst,
> Louise Yamada, has also been highlighting this risk, and many big
> hedge funds are positioned accordingly. I believe that markets will
> always do what they have to do to screw the most people, and this
> would be it in spades. Imagine trying to trade the tedious 500 point
> range for six months, only to see the indexes drop by half and volatility
> double. You can kiss another generation of traders goodbye. Whatever
> you do, don’t short volatility here in the mid twenties in mid August.

2009 Aug 21 12:18 AM

[tommy u]

p.s. mad

we should all be so hot ,,,, and sharp when we attain louise's age.

best


tluj

2009 Aug 21 12:19 AM

[Obewan]

What chart?


On Aug 19 03:19 PM Mad Hedge Fund Trader wrote:

> bvm. There has been a lot of chatter in the blogosphere lately about
> the eerie and frightening similarities between our current global
> stock markets and those of 1937. Look at the great chart below, which
> I obtained from the ace quants at charlesnenner.com/. After
> a ferocious dead cat bounce and a tortuous period of sideways consolidation,
> we break down to a final Armageddon sell off. Top technical analyst,
> Louise Yamada, has also been highlighting this risk, and many big
> hedge funds are positioned accordingly. I believe that markets will
> always do what they have to do to screw the most people, and this
> would be it in spades. Imagine trying to trade the tedious 500 point
> range for six months, only to see the indexes drop by half and volatility
> double. You can kiss another generation of traders goodbye. Whatever
> you do, don’t short volatility here in the mid twenties in mid August.

2009 Aug 22 08:06 AM