Where Have All the Bulls Gone?

I have expressed my concern about the state of the equity market before, but indicated that the bulls appear to remain in control despite the poor fundamentals. In a post entitled the most hated rally in Wall Street history, Barry Ritholz wrote last week that:

Most bull moves do not end when they are hated, they come to a halt and reverse when they become over-owned and over-loved.

We are not there yet.

The latest data from the AAII survey shows that, despite the equity rally, individual investors are not super bullish yet. [click to enlarge]

Mark Hulbert’s survey of newsletter writers as of the end of September also tells the same story - there is no sign of bullish extremes. Morningstar also concluded that fund investors are still not buying into the stock market rally, based on their analysis of mutual fund flows data.

Another market bubble?
Is a bubble forming in the stock market?

I believe that the term “bubble” is over-used. Current readings from sentiment models suggest that the lack of investor bullishness may serve to put a floor on any near-term market weakness. While there are big risks from the fundamentals, it may be too early for traders to contemplate shorting the market here.

Bubble? No.

A frothy market? Definitely.

Comments

[Shishir Nigam:]

It's hard to see this rally get any love other than that coming from the CNBC news anchors.

Check out my blog: youngandinvested.com

Oct 13 06:53 AM

[rick12345:]

Like myself, people want to see how earnings season kicks off. This will happen later in the week, once we see a broader array of companies release their reports'. I think that analysts have been talking up the market over the last week, so we should be very careful about how we approach any large purchases.

Oct 13 07:06 AM

[JAMES CARLINI:]

Some on CNBC are great cheerleaders when it comes to seeing a positive blip in the market, and then proclaiming that "Capitalism is back and now is the time to go ALL IN".

Smart money is NOT going "all in" and not buying off on the ShamWow approach to selling stocks.

Oct 13 07:28 AM

[logicalthought:]

I have a theory that the average person on "Main Street" may actually be ahead of Wall Street on knowing where this market is going, as he (or she) is getting a first-hand look at how bad the economic situation is in the "real world", particularly in regard to employment. Thus, in a way, these folks are acting as "smart money channel checkers", and perhaps what used to be called the "smart money" should-- at least at this one point in time-- listen to what used to be considered the "dumb money".

Oct 13 07:57 AM

[tripleblack:]

"Frothy". My compliments to the author, it IS the best characterization I have seen for this equity market.

I agree, the "usual suspects" are all up to bat starting this week, with earnings holding a fascination for many. I will personally be seeking to penetrate the fog of "beat estimates" numbers to penetrate how the companies are doing vs likely profits and against their history...

Another potentially huge tsunami that may move this market ("frothy" as it is) would be political news regarding new taxes, major programs (Health Care, followed by Cap & Trade), and so forth. I would consider the political events the jokers in the deck.

Oct 13 08:26 AM

[marketstudent:]

I think that you all may be missing the reason for bullishness. Several companies have indicated top line growth, which I think may be mostly due to inflation rather than to increased demand. If inflation is pushing earnings, then "bullishness" is somewhat justified based on a proper emphasis on forward earnings rather than on past earnings.

Oct 13 08:57 AM

[stockratease:]

At its current level the market is already pricing in a very sharp 'V' shaped recovery.
Whilst this IS most certainly possible there is little empirical data to support it.
The actual data coming through supports a limp, sluggish, anemic recovery.

One see figures thrown around like so and so's earnings are up 25%. But when you look more closed you see they are still actually way down on last year. This is because over bullish investors are reading too much into percentage changes (both on earnings and data) and not paying attention to the ACTUAL LEVELS.

The wild card is liquidity which has to go somewhere and is without doubt finding its way into equities (MSCI world index up over 70% since march)
When i see apple stock back up at $200 a share i do think there is a case to say some sections of the market are now bubbling again.

Investor sentiment may not play ball this time and get excessively stretched remember private investors and in particular baby boomers (since they hold the majority of wealth) have been beaten left right and center. First there was Nasdaq 2000 and the bear market that followed. Then there was Enron. Then there was 9/11. Then there was the Bernie Madoff. Then there was the wipe out of 2008.

Its quite amazing any of these people have any money left. let alone want to place, yet again, into the hands of wall street.

If you are waiting for investor sentiment indicators to get stretched you might be waiting a long time..

Meanwhile this dead cat may fall back down to earth.

Oct 13 09:23 AM

[F. Bradeen:]

To Seeking Alpha: I am still having problems accessing your web pages. Even when I do the graphics are gone. Anything you can do about this situation? I have Verizon.net. Thanks

Oct 13 09:26 AM

[robert.b.fe...:]

Earnings season is illusary at best much of the "Beat estimates." is due to cost cutting and other measures not overall earnings. As tripleblack pointed out there is a lot of uncertainty due to political wrngling and what it portends for the future. Team Obama just backed down from a new confiscation...er tax scheem to get at wealth generated off shore. Insurers released a Price Waterhouse report scewering the prevalent health care reforms being discussed on Capitol Hill and team Obama can't seem to come to grips with the fact that most people aren't buying what they are selling. Hat tip to the author well done. As usual keep your travelling stops tight and your stash of cash in gold. Good luck all.

Oct 13 10:32 AM

[rick12345:]

Most investors have made back more money than they lost through a sound investment strategy of selling at a profit and reinvesting during troughs. If you sold all of your investments in March and missed the rally completely, then yes you would be hurting. This is the main hurdle for the novice investor - you have to be willing to cut your losses at times and then somehow pick yourself up.
Anyhow, if today's performance is any indication, we're in for a rough ride.

Oct 13 10:38 AM

[Michael Clark:]

We could also have a global political event that overturns the bull run, something totally unexpected. Israel anyone? Israel is great for doing the unexpected.


On Oct 13 08:26 AM tripleblack wrote:

> "Frothy". My compliments to the author, it IS the best characterization
> I have seen for this equity market.
>
> I agree, the "usual suspects" are all up to bat starting this week,
> with earnings holding a fascination for many. I will personally
> be seeking to penetrate the fog of "beat estimates" numbers to penetrate
> how the companies are doing vs likely profits and against their history...
>
>
> Another potentially huge tsunami that may move this market ("frothy"
> as it is) would be political news regarding new taxes, major programs
> (Health Care, followed by Cap & Trade), and so forth. I would
> consider the political events the jokers in the deck.

Oct 13 11:33 AM

[JAMES CARLINI:]

logicalthought - good point.

SMART money has diversified into more than just stocks and bonds (and real estate). What amazes me are all the people you see on the Barrett-Jackson Auto Auction and what they spend on cars.

Some woman bought a 1963 Ford police car that was signed by Don Knotts (Barney Fife). The bidding was fierce and it sold for $105,000. $105,000!!

She didn't seem worried about 401K plans or the price of gold. She HAD to have that car. I wonder what she knows that we don't know.

Disposable income or a "value" investment? One-off things, antiques and original art better than limited offerings that are hyped up to have value and liquidity?

Diversity seems to take on a much broader view than what many would consider "diversified" - ala Cramer - one utility, one pharma, one high tech, one consumer products company and one bank.

Oct 13 11:56 AM

[Albertarocks:]

On Oct 13 07:57 AM logicalthought wrote:

> I have a theory that the average person on "Main Street" may actually
> be ahead of Wall Street on knowing where this market is going, as
> he (or she) is getting a first-hand look at how bad the economic
> situation is in the "real world", particularly in regard to employment.
> Thus, in a way, these folks are acting as "smart money channel checkers",
> and perhaps what used to be called the "smart money" should-- at
> least at this one point in time-- listen to what used to be considered
> the "dumb money".

Finally! Finally, someone other than myself has confidence that we (the dumb money) have maybe learned from past mistakes after all. I've said before and I'll say it again, the overwhelming evidence that this is a rally generated by the banksters who are in absolute panic mode, was so obvious that it makes one beg the question "who exactly is buying this market"? Well one thing is for sure, when some of the up-days featured 40% of the volume occurring in 4 zombies, it was pretty clear that it wasn't Joe Dumb Money who was buying.

And tonight, as I write this, the banksters are still waiting patiently for the pumped up earnings reports that we're going to see Wed., Thur., and Fri. to result in one grand and glorious infusion of "dumb money" into the markets, thereby spurring a tumultous rally into Christmas.

Maybe the dumb money is the money that's pumped this market up to 140 x earnings? Listen to logicalthought... he thinks logically. It ain't gonna happen this time.

Oct 13 07:46 PM