Regular Investors Don’t Love This Rally Yet — Here’s What That Means for Stocks
By Victor Reklaitis, MarketWatch
Rather than everyone breaking out the champagne as the weekend nears, there is still a fair amount of discomfort over the stock market’s relentless surge.
There is getting to be a shortage of superlatives for this market, says Instinet’s Frank Cappelleri, noting a growing sense that it shouldn’t be acting the way it is. (How about the term “quintuple record” for yesterday’s historic finish?)
“It won’t last into perpetuity, but this is the kind of behavior that happens in uptrends,” writes Cappelleri, who might be trying to console the bears. “Overbought conditions can be meaningless for extended periods of time.”
One indicator — a sentiment gauge from the American Association of Individual Investors — suggests the march higher isn’t done yet.
Regular folks who invest are “still not on the bus,” say Bespoke Investment Group’s analysts, as they highlight the latest AAII reading and provide our chart of the day.
In this week’s AAII survey, 43.1% of respondents were bullish, down from 43.8% a week ago and from 49.9% in late November.
“While you may say that it’s perfectly natural for investors to become less positive as stocks become more expensive, that would mean that they would have had to become positive in the first place, and that has not been the case,” Bespoke’s analysts argue.
“In fact, the last time more than half of individual investors were bullish was 101 weeks ago, at the start of 2015.”
And that is why Bespoke views individual investors as not on board with this rally. That could be a bullish sign — the AAII gauge is often considered a contrarian indicator, based on the fact that “mom and pop” investors frequently are jolliest at market tops and gloomiest at market bottoms.
But you could also argue retail investors are showing some real cheeriness, given that AAII figure is holding above 40% for a fourth straight week, for the first time in about two years. Also, all indicators should be handled with care.
If you’re looking to bet on stocks, our call of the day argues in favor of gambling — saying buy casino stocks despite the China-inspired selloff they just suffered.