Advisers surprisingly skeptical of stock-market rally

weigoodone01

This question might strike you as a bit premature, since the late June/early July correction is not yet completely over. But it's close enough to being a thing of the past to at least begin asking this question.

/quotes/comstock/10w!i:dji/delayed
INDU 8,712, +95.61, +1.11%

/quotes/comstock/10y!i:comp
COMP 1,885, +22.13, +1.19%


15%10%5%0%-5%MJJAfter all, the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 8,712, +95.61, +1.11%) is just 1% off its June closing high. And other market benchmarks have already surpassed their respective rally highs: The Nasdaq Composite index /quotes/comstock/10y!i:comp (COMP 1,885, +22.13, +1.19%) , for example, finished Thursday more than 1% higher than its highest June close.

One thing that is not higher today, however, is advisor sentiment: Investment newsletter editors are markedly less bullish right now than they were at the stock market's June highs. This is particularly so for the editors of those newsletters that focus on the secondary market.

From this we can conclude that at least one consequence of the recent correction was to wring some of the exuberance out of the market. That's a positive development, according to contrarian analysis.

Consider the average recommended stock market exposure among short-term stock market timing newsletters tracked by the Hulbert Financial Digest. It currently stands more than 15 percentage points below where it was in early June, even though the stock market itself is more or less at the same level.

In other words, they are more inclined than a month ago to see the investment glass as half empty.

This tendency is even more pronounced among the newsletters that focus on timing the Nasdaq market: Their average recommended exposure to Nasdaq stocks is 27 percentage points lower today than the highest level to which it rose in June, even though the Nasdaq Composite Index is more than 1% higher than its June peak.

What this means: Over the last month, advisers have been quicker to reduce exposure in the face of falling prices than they were to increase exposure in the wake of rallies. According to contrarian analysts, this is not typical of the stubborn bullishness that is often seen at market tops.

What remains unclear, however, even in the face of this brightening sentiment picture, is whether sentiment will continue to improve by enough to convince contrarians that we're in a new bull market -- as opposed to being in a mere bear-market rally that still has a bit more to run.

Fortunately, though, we don't have to speculate. We just have to monitor the sentiment situation as it unfolds.

The "bear-market rally" hypothesis would gather support, for example, if advisers in coming sessions are quick to jump back on the bullish bandwagon -- and then stubbornly cling to that bullishness in the face of any subsequent market weakness.

In contrast, the "new bull market" hypothesis would gain contrarian adherents if advisers continue to be skeptical of the market, and especially so if they were to build up cash in the face of continued market strength.

We'll know soon enough.

But, in the meantime, the best contrarian guess is that the rally has further to go

mary666

thx

Cooker

Ding.

90ufo

看这文风,就猜是Hulbert,去MARKETWATCH一看,果然不出所料.哈哈.