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Bespoke: Bullish Sentiment Reaches Historical Extremes

Dec. 27, 2010 3:46 PM ET1 Comment
TraderMark profile picture

If the market continues its levitation through next week and the first day of the month (which almost always is up) odds would favor at least a short term bearish position on the 2nd trading day of the new year or so as bullish sentiment is approaching "off the chart" levels. The two main sentiment surveys, Investors Intelligence and the American Association of Individual Investors, taken alone each show extremes, but in this measure that Bespoke put together, combining them show where we are historically.

Essentially, we have not seen these levels aside from right before the historical crash of 1987 ("Black Monday"), the height of the NASDAQ bubble in 1999, and a few weeks in 2003-2004. Excluding 1987 one parallel to today and 1999 and 2003-2004 was a Fed gunning the system with easy money (Y2K money in 99, and at the time historic 1% rates that set the seeds of the housing fiasco in 2003-2004). Who says the Fed does not move markets?

(Click to enlarge)

We are now above any level in the post March 2009 period by a long shot, and even above the mood that hung-over investors at the market peak in fall 2007. Our world shall be very interesting if the Fed ever takes its peddle off the metal.

Disclosure: None

This article was written by

TraderMark profile picture
Mark will be launching a mutual fund summer 2010. He is a self taught private investor who operates the website Fund My Mutual Fund (http://fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary. Fascinated by the market since an early age, he discovered mutual funds as a teenager in the 80s and moved to equities by the mid 90s. The origin of the website is/was to leverage the power of the internet in developing a transparent track record to attract investors for his potential "long/short" mutual fund. His equity focus is identifying secular growth trends and the companies most likely to benefit from these macro trends. Stocks are identified through fundamental analysis, although basic technical analysis is used in determining entry and exit points. You can receive Trader Mark's latest posts daily by subscribing free via RSS reader (http://feeds.feedburner.com/FundMyMutualFund) or subscribing free via email (http://www.feedburner.com/fb/a/emailverifySubmit?feedId=1109639). With a degree in economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology, is also a major interest for Mark.

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Comments (1)

sheeple123jump profile picture
Interesting chart to speculate on.... but looking at the bottoms as well as the tops,one can see the bottom spikes for the fall 2008 and march 2009 period...look at the most recent ones that appear to represent this years lows of february and july ??...in my mind, these lows were hardly extreme...sending the S+P down to the 1040 and 1010 area....while every doomsayer was looking out for at least a double dip to the march 09 lows and many fearing a worse drop than that. To see the market hold up at the 1000 area,(courtesy of the plunge protection team?) ....what does this suggest when analyzing this chart? Maybe the extreme bullish sentiment now has alot to do with the mild 2010 'correction'.

How do these extreme readings on the chart for the past few years really compare in reality,to those from 20 + years ago...when you factor in the extreme market manipulation being done now by the powers that do it,versus the extent to which they did or didnt manipulate the markets 20 years ago. High frequency computer traders werent moving markets 20 years ago were they ?
and the global economy/fiat currency/monetary crisis we have now wasnt happening 20 years ago like it is now.

Its an interesting chart to speculate on but what really can it tell us.
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