Bullish US sentiment remains a very negative indicator
Posted on 29 November 2010 with no comments from readers
Pride usually comes before a fall in stock markets. This is something to do with a combination of all the potential buyers having bought into the market and the herd mentality.
With global stock markets now having doubled since the financial crisis the participants are beginning to think that things are going so well that they cannot lose. Historical precedent suggests that this is when they are actually most likely to do just that.
On the latest survey from of American Investors, Charles Rotblut of AAII comments:
‘Bullish sentiment, expectations that stock prices will rise over the next six months, rose 7.4 percentage points to 47.4 per cent. This was the 12th consecutive week that bullish sentiment has been above its historical average of 39 per cent.
‘Neutral sentiment, expectations that stock prices will remain essentially flat over the next six months, edged up 0.4 percentage points to 27.9 per cent. This was the 16th consecutive week that neutral sentiment has been below its historical average of 31 per cent.
‘Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.8 percentage points to 24.7 per cent. This is a four-week low for bearish sentiment. The historical average is 30 per cent.’
What could puncture this bubble of optimism on Wall Street? The European debt crisis seems too far away. But what about a looming potential clash over Korea and the WikiLeaks foreign policy blockbuster?
It certainly has to be said that talk of a US recovery is still much overdone. The Thanksgiving holiday retail sales were predictably disappointing and US housing sales in October a disaster (click here). Only increased inflation is making GDP growth look healthier when in real terms this is stagnation at best.
