Wall Street by its nature lean towards self-absorption but this is ridiculous. With scant economic news this week and earnings behind us, the only thing traders are talking about is the collective mood. Between tick by tick observations regarding the Volatility Index (^VIX) making all-time lows and the persistent desire of pundits to make the definitive “top” call, it seems like Wall Street won’t rest until it talks itself into a selloff.
“Everyone is saying ‘Everyone is bullish so I’m bearish’ which is almost like everyone is bearish,” says Paul Hickey of Bespoke Investment Group. Of course, no one is actually really bearish on that basis. Professionals are “cautiously optimistic,” almost to a person. Frankly, it’s the only stance that makes much sense in an environment where the trend is relentlessly higher and volatility on a realized basis is next to nothing.
Based on the AAII.com survey of individual investors the mood is actually fairly subdued.
There are fewer bears than normal but the number of bulls is almost precisely the historic average and those who consider themselves “neutral” is still elevated. As mentioned in this space a month ago, it’s almost impossible to get Americans to not have an opinion on the stock market. Neutral normal leads to a large move in one direction or another.
That observation came immediately prior to a 5% rally.
Hickey scoffs at the notion that there’s sentiment evidence suggesting investors are throwing caution to the wind. Of course, on the heels of a big move is the wrong time to ask. The big test will come on the next pullback. “If bullish sentiment does what it’s been doing for the last few years and cratering whenever you see a little selloff, that’s a positive signal that sentiment is still a little skittish.”
When bullishness holds up in the face off selloffs Hickey will start getting nervous. Unless and until that moment comes it’s time for traders to stop asking everyone how they feel. It won’t make you any money and you don’t really want to know anyway.
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