U.S. Stocks: Here’s a Big Sign That “Sentiment Cannot Get Much More Extreme”
The stock exposure of the most bearish active investment managers is revealing
by Bob Stokes
Updated: February 25, 2021
Relatively few investors want to bet against the stock market rally.
As a Feb. 18 financial article says (CNBC):
Short interest in the market has fallen to near-record lows.
Indeed, bullish sentiment is so extreme that even the most bearish among a group of professionals are behaving bullishly.
This chart and commentary from our February Elliott Wave Financial Forecast provide the details:
The chart shows that on a 10-week basis, the National Association of Active Investment Managers Exposure Index jumped above 100 in January, a new record extreme. Remarkably, even the most bearish NAAIM managers were 75% net-long equities. When even the bears are bullish, sentiment cannot get much more extreme.
A big reason why sentiment extremes are noteworthy is that they convey that there are relatively few market participants left to buy (or, in the case of a bear market, left to sell). Put another way, imagine almost every passenger crowded into one end of a boat. It won't be too long before they're all wet.
Of course, there are some serious market bears out there.
On Jan. 24, a CNBC headline reflected the warning of a well-known investor:
Stocks will fall at least 30% in a drawn-out bear market...
That investor had cited "business unfriendly policies" out of Washington as one of the main reasons for his bearish forecast.
Time will tell if that market prediction will play out.
However, do realize that the waves of investor psychology are not dependent upon "fundamentals" such as Washington's business policies (or any other news). Just think, for example, that the current occupant of the White House was the U.S. Vice President from 2009 into 2017, the years when the stock market had almost tripled.
Indeed, Elliott wave analysis focuses on the market itself, and right now, the price patterns of the main stock indexes are sending an urgent message that every investor needs to know.
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See What Our Elliott Wave Experts See: High-Confidence Junctures in U.S. Financial Markets
These markets include the U.S. dollar, gold, silver, bonds -- and, yes, the stock market.
If you want to stay ahead of trend changes in all these key markets, your immediate attention is strongly suggested.
You see, swift price changes are anticipated -- so it's wise to review our Elliott wave forecasts now.
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