Tuesday, May 23, 2017

A Chart The Bulls Might Not Like To See

This is a chart you don't want to see if you're bullish on stocks right now.  Basically it's a chart of investor sentiment which is right now showing elevated levels.  The theory on this is that as more investors become bullish, the amount of money that can be committed to stocks declines because all those who want to invest have largely done so.  

A few thoughts on this.  First such indicators are not perfect.  Also sentiment corrections can happen via time as well as price.  By that I mean a market that runs in place for a certain period of time can dampen the animal spirits just like a market correction.  Finally markets can stay elevated in terms of sentiment for longer period than most investors think.  That is also true for markets trading at depressed levels of sentiment.  

Still this is not the most uplifting thing to view as sentiment is a pretty decent indicator of performance over time.  Something to watch going forward.