Research Excerpts

When Being Bullish Can Become Problematic

Posted on: Thursday, January 9th, 2014

Investor sentiment is an important component of financial market analysis because it tells us what investors are collectively thinking.  More specifically, when a certain type of investor gets either too bullish or too bearish on an asset, it usually means something important — that investors have become “off-sides” — and typically precedes a  important trend reversal in the price of that asset.

We spend a lot of time collecting and studying different types of investor sentiment data.  In fact, one of the 8 reports that we produce for Asbury Research subscribers, the monthly Investor Sentiment Survey (click here to download a sample copy), is strictly focused on finding imbalances in these data that have historically coincided with or preceded important trend changes in direction in the US stock market, US interest rates, the US Dollar, and in what we call economically-influential commodity prices like copper, gold, and crude oil.

One of the dozen or so data series that we track, the Investors Intelligence data, was particularly interesting this past week because the Bulls minus Bears subset of this series (blue line, lower panel of chart below) rose to an historic most bullish extreme that hasn’t been seen since February 1987.

More simply stated, the stock market newsletter writers that have comprised this series since 1963 have not been this bullish in almost 27 years.

Investors Intelligence Data, Bull Minus Bears

Investors Intelligence Data, Bull Minus Bears, Since 2006

The red highlights on the show that, at 46, this series as at an historic high extreme, and that similar or lesser extremes have coincided with or led some of the most important peaks in the S&P 500 (black bars, upper panel) in recent history including October 2007, April 2010, and 2011.

Interested  investors can request a copy of our most recent Investor Sentiment Survey by clicking here, typing “Sample Report” in the subject line, and including their business contact information in the body of the email.

Finally, our 2013 performance/market calls for the US stock market, US interest rates, and individual assets has been updated to our website and can be viewed by clicking here.