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Wednesday, April 24, 2013

Sign of a top?

How about this for a magazine cover.


That kind of cover is often a good contrarian sign.  However, there is even more to it.   From the article.

The stock market isn't the only thing that has set records this spring. Barron's semiannual Big Money poll of professional investors also is setting a record -- for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks -- an all-time high for Big Money, going back more than 20 years. What's more, about a third of managers expect the Dow Jones industrials to scale the 16,000 level by the middle of next year, notwithstanding a dismal week of selling that left the blue-chip index at 14,547.51 on Friday.
A quick trip through history reveals that only 45% of managers were bullish in the spring of 1999, and 54% in the fall of that year, even as the dot-com boom was inflating. Similarly, bullish sentiment was in the mid-40% range in the mid-2000s, as the housing market was on the boil and stocks last were hitting fresh peaks. 

Six months ago, just 46% of managers were bullish, down from 55% in the spring 2012 poll. Stocks have rallied 10% since our fall survey was published on Oct. 29.
This spring's survey is notable, as well, for the dearth of bears: A mere 7% of respondents are pessimists today, down from 27% last fall. The remaining bears looked pretty smart last week, as the Dow lost 2.1%, and commodities prices plummeted. But recent conversations with other Big Money managers suggest they expect stocks to resume rising, despite a litany of concerns -- about fiscal gridlock in the U.S., the debt crisis in Europe, money-printing worldwide, and a still-sluggish global economy.
Professional investors remain well ahead of their clients in bullish sentiment. Sixty-two percent say their clients are bulls on stocks now, while 38% claim their customers are bears.

 A little further in the article was this.

Fortunately, perhaps, only 16% of managers say their investment decisions are heavily influenced by U.S. fiscal policy. But many seem worried about trends at home, and the nation's place in the world. Fifty-five percent of managers don't believe that the U.S. is a waning world power, but 37% do. Small wonder the Big Money folks finger political dysfunction as one of the biggest challenges facing the market, along with Europe's problems, potential earnings disappointments, and a possible deceleration in economic growth.
Even so, the managers aren't just bullish on U.S. stocks, but on equities generally. Some call it the TINA trade, for "there is no alternative" to stocks in a slow-growth, ultralow-interest-rate world. Eighty-six percent of poll respondents are bullish on stocks for the next 12 months, and a whopping 94% like what they see for the next five years. Real estate has similar approval ratings.

We have the most bulls in 20 years of the poll.  Amazingly 86% are bullish for the next 6-12 months and 94% are bullish for the next five years.  Really.  Now.  We are likely in a global recession that appears to be getting worse.  Corporate earnings are clearly deteriorating and everybody is the most bullish in 20 years.  Well that certainly makes a lot of sense to me. 

I know we have made a new all time high in many indexes, but that does not mean the secular bear is over.  Here is the Dow chart from the 70s when it made a  new all time high in 1973 after 7 years.

The next thing that happened was the worst bear market of the entire series of bear markets.

In 2000 individual investors were clearly overly bullish.  That is certainly not the case today.  However, that optimism has been replaced with big money managers being way overly bullish.  Between this magazine cover and the great rotation story we have really good contrarian signs of a major top.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.