Things That Don’t Make Sense in a Bull Market

As I write this post, the S&P 500 is within a whisker of new all-time highs. Again.

Yet, the higher the index climbs, the more bearish the general investing public becomes.

Case in point: Derald Muniz shared this chart this morning that shows the trend of investor sentiment — as measured by the American Association of Invididual Investors (AAII) — steadily declining throughout 2014.

AAII Bull Weekly chart shows a decline in 2014 $STUDY

— Derald Muniz (@1nvestor) May. 22 at 11:00 AM


Meanwhile, on a more micro-level, bearishly tagged messages on StockTwits continue to test their highest proportional levels in 6 months: 

Screen Shot 2014-05-22 at 9.10.51 AM 

Are investors trying to be too cute, outsmarting themselves? Are they all trying to frontrun each other out the exit door? I’ve seen some extraordinary things in my 16 years in these here stock markets, but this situation is something that is highly unusual. (cue the “this time is different” chatter).

The way I see it… either history repeats and the S&P 500 and Dow follow the lead of small caps and correct – thus validating this persistently bearish bent. Or… Market participants get caught leaning the wrong way — fueling a monster summer rally taking the S&P 500 north of 2000, causing casual investors around the country to reach for their mute buttons anytime the Rick Santelli’s of the world appear on TV.

Neither scenario is a sure thing, but it’s best to begin preparations for both.

Update: For more on this amazing stat of the S&P 500 falling greater than 10% each and every time the Russell 2000 has fallen by 10% since 2000 (35 times!), please see this excellent blog post by Michael Batnick (@michaelbatnick).

Follow me on StockTwits: @chicagosean


blog comments powered by Disqus
StockTwits Blog
  • StockTwits® is the world's largest social network for investors and traders. Anyone can share ideas about their favorite stocks or follow what others are saying in real-time. The quickest way to get started is to join right now and make sure you sign-up for our FREE email list.

    We also have a FREE app on the iPhone and Android app stores. Get it today.

  • Search by Date

  • Join StockTwits