Tuesday, September 28, 2010

Bullish Market Bucking Off Bulls

It appears that this market can't even pull bulls along kicking and screaming. New report from Mark Hulbert (the expert on contrarian sentiment data from newlettes) shows that most advisors continue to doubt this rally. Appears that short term market timers are only recommending 22% of clients equity portfolios towards domestic stocks. That's down from 52% around the market top back in early May. While this is a short term 1-3 month indicator, it does show that advisors remain a lot more bearish then one would think considering the market rally during September. Clearly most advisors now worry about a October sell of and so the only path might be up.

  • Consider the average recommended domestic equity exposure among a subset of the shortest-term stock market timers monitored by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). This average currently stands at 22.1%, which means that the average short-term market timer is recommending that his clients allocate more than three-quarters of their equity portfolios to cash. 
  • This 22.1% equity allocation is surprisingly low, given the stock market’s strength in recent weeks, and suggests that there is widespread skepticism towards the rally. And that’s good news, on the contrarian grounds that the majority is usually wrong about the market’s direction. 
  • This reminds me of an analogy that some contrarians are fond of using: A bull market can be thought of as a bucking bronco in a rodeo, trying its darnedest to throw everyone off its back on the way to the other side of the ring. Clearly, this bull market is doing a pretty good job of doing exactly that.

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