Market sentiment is much different today than it was in June
Any self respecting sentiment rally would need to flip formerly over-bearish refugees and get them lusting for stocks once again. In looking at the ‘dumb money’ aggregate, that appears to be what is happening now.
Back at the June sentiment lows we noted how this and other sentiment indicators were stretched over-bearish nearly to the degree of the depths of the 2020 COVID crash. That event was also unsustainable.
Today casino patrons are emboldening, on cue. The classic setup is for a bull trap and a massive whipsaw for these knee jerkers. But I have also seen times when I rightly projected sentiment rallies that I thought would be terminal, but instead kept on going. Never underestimate a greedy bull when she’s got the bit in her mouth. FOMO + MOMO = maybe not what the bears would hope for.
Anyway, here is a look at NAAIM’s investment managers eating the rally right along with the dumb money above. This reading is as of August 10.
Ma and Pa, you ask? Well, AAII is eating the rally, but Ma and Pa tend to be more disciplined than the boyz above managing other peoples’ money. Ma and Pa manage their own money. Hence, a more muted response as they try not to chase too much.
As for the newsletter writer community (Investors Intelligence), the bearishness was actually more acute than the 2020 crash low and so you can see the power built into this sentiment rally. The newsletter boyz were springing back hard as of August 9, but could have more recovery to go before the rally ends.
Personally, I have seen this movie before. In that movie I call a rally while the average casino patron is hiding under a rock, swearing off the stock market forever. Then the rally persists… and persists… and persists. Then at some point casino patrons are happily back to normal, expecting stocks to go up forever. I have in the past aborted such rally situations too soon, even after calling for the bullish phase to the sound of crickets among casino patrons. Then I watch the FOMOs and MOMOs drive the mess ever higher.
So I am going to stay aware of those experiences while at the same time adhering to NFTRH’s original plans for the rally and its end point. I rag on we TAs a lot, but there are clear levels at which it’s still just a bear rally as originally planned. But there are also clear levels that would strongly call that notion into question. As yet, it’s still just a bear rally but I’ll keep an open mind due to the history of my experiences. Never underestimate the greedy momentum of the bulls and what it is capable of.
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This Post Has 9 Comments
I am one of those hiding under a rock. When I step out, i usually get swatted.
This past week has been tough watching everything go up and being 72% in cash. At least it’s now getting over 2%
Your cash levels are lower than mine. And do you know what? I don’t have even a single impulse about FOMO’ing. I am very conservative and will take the payout on the cash and trade around 20% to 30% +/- in this market. Only when I find the next opportunity to establish a NEW trend will I commit more. The stock market is played out IMO. FOMOs are rushing back in. Yeah, I wanna get me some of that. <