Sentiment is a funny thing.
You need the madness of crowds for “blowoff” tops and “melt-ups” and other examples of speculative manias where the final act is characterized by figurative and literal buy-in from the entire universe of market participants – complete capitulation to the dark side by all but the most ardent of bears – acquiescence to the rally by everyone but the most incorrigible of skeptics.
But because manias are not manias without some semblance of euphoria, those betting on a collapse need the madness of crowds too. Remaining steadfastly bearish in the face of a rally can be frustrating, but once it becomes readily apparent that optimism has morphed into mania – that rational exuberance has become irrational – there’s a certain satisfaction in watching the lemmings sprint towards the cliff.
As we noted on Wednesday, retail investors are now all-in like never before – or at least according to TD Ameritrade’s proprietary
idiot tracker index that monitors holdings, positions, trading activity, and other data from client portfolios held by real investors each month and rolls it all up into an index.
Well, with all of that as the context, it’s worth taking a look at where the Investors Intelligence bull-bear spread stood heading into previous bear markets versus where it stands right now. Have a look at this:
Yeah. Folks are bullish.
As Goldman writes, “bullish sentiment alone is not a reason for a correction but increases risk of disappointment.”
And see that’s the thing about where things currently stand. It would be virtually impossible for the bears to get any more “disappointed” than they are now. They’re at rock bottom. Rock bottom is often a pretty solid foundation for a comeback.
Meanwhile, the bulls are higher than a ferret smoking trucker speed. The come down from that is pretty rough. Not that we know anything about ferrets. Or trucker speed.