I've touched on the fact that the average investor wants nothing to do with this market. Yet, when you consider how strong the price action has been, this can be incredibly bullish from a longer-term perspective. When you read that 75% of high school students in a recent poll think the stock market is "rigged," that tells you we have a generation of investors simply wanting to own bonds, gold, and cash. The idea of touching a stock is simply ludicrous.
We've been bullish for years now at Schaeffer's. Here's an interview I did with CNBC live from the floor of the New York Stock Exchange (NYSE) just a week after the March 2009 lows, and noted reasons to expect the rally to continue. It isn't hard to Google me and see that just about every time I've been on television over the past three-and-a-half years, I've said something along the lines of "sentiment is too low and price action looks good ... stay bullish." Sure, we'll have pullbacks that are scary, and maybe even correctly call a top before impending weakness -- but the fact remains that when expectations are too low, it greatly increases the odds of having better news, and thus higher stock prices.
Want more proof just how upside-down things are? After gains of more than 100% since the March 2009 lows, and a market breaking out to new monthly highs, if you are bullish, you are hated. For some good laughs, check out the comments from viewers after my recent Yahoo! Breakout segment with Matt Nesto.
Let's just say being bullish isn't very well received. You can follow me on Twitter, and lately I've been getting a good deal of hate for being bullish -- mainly because this is a manipulated rally, and it won't last. Although no one likes to be called names, I'm okay with it, and in fact have no problems with it, as it tells me the odds are we continue to go higher.
Think about this, though, the facts are bears have been laughed at at all major tops, and bulls have been ignored at major bottoms. Irving Fisher, Ph. D. in Economics, on Oct. 17, 1929, said, "Stock prices have reached a permanently high plateau."
Then who could forget, "The worst is likely to be behind us," as Henry Paulson, U.S. Treasury Secretary, claimed on May 7, 2008. We all make mistakes, but when you see Bill Gross telling us that stocks are a "Ponzi scheme" and "the cult of equity is dying" -- you have some incredibly powerful contrarian fodder.
Besides the fact that everyone hates you if you are bullish in this environment, the recent CNBC ratings are out, and they are eye-opening. In a nut shell, people simply aren't interested in a strong bull market.
Here are the numbers floating around on the Internet regarding CNBC's viewership.
Now, could some people be finding their news online, and not watching television as much? Absolutely, that could be some of it. Is CNBC's programming really that much worse? Of course not. In fact, in a lot of cases I think it's more interesting than it used to be. (As a side note, I haven't been on CNBC since March -- so I'd like to think that has something to do with their declining ratings.)
But seriously, the bigger picture is the stats above simply reinforce how disinterested the public is towards stocks, and for this very reason I expect prices to continue to move higher. Remember, markets peak at euphoria and bottom at despair. Well, we aren't at despair anymore -- but we sure aren't anywhere near euphoria. When you see the Dow has up been nine of the past 10 months, yet we've had domestic equity mutual fund outflows nine of the past 10 months -- that right there tells you all you need to know.
Now, something else we've been talking a lot about is the action in the American Association of Individual Investors (AAII) poll. Chris Prybal in our Quantitative Analysis department noted a few weeks back how we were looking at one of the longest streaks of more bears than bulls in history. Well, that finally came to an end, and we finished with 13 straight weeks of more bears than bulls. That, my friends, is some pretty persistent bearishness that checked in tied for the third-longest streak since 1987.
The next question in my mind was what happens after such persistent bearishness? Well, Chris helped me out here. The previous four times we've had at least 13 straight weeks of more bears than bulls, and then it flip-flopped back with more bulls -- the results are extremely encouraging, if you think this rally will continue.
Not to be outdone, the 10-week moving average of the bulls is still down near past major buying opportunities going back a decade.
All in all, I think as long as no one wants to own stocks, and bulls are ridiculed, you want to stay bullish.
The Case for Big Moves in IWM and QQQ
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