Barron's Big Money Poll Bullish Consensus Reaches a Record High
This week's Barron's magazine contains the latest Barron's 'big money' poll. Evidently they interviewed a herd – there was once again near unanimity on a number of markets. The bullish consensus on US stocks clocked in at a new all time high for the Barron's poll with 74% of those surveyed declaring themselves 'bullish or very bullish on US stocks'. Only 7% are pessimistic. By contrast, only 45% were bullish in the spring of 1999 and 54% in the fall of 1999. One third of those taking part in the survey expect the DJIA to reach 16,000 points within about one year, 25% think it will go higher than that.
That is just for the US stock market, mind. Apparently there is a separate category asking about 'stocks in general', as well as about real estate. This has to be seen to be believed:
“Even so, the managers aren't just bullish on U.S. stocks, but on equities generally. Some call it the TINA trade, for "there is no alternative" to stocks in a slow-growth, ultra-low interest rate world. Eighty-six percent of poll respondents are bullish on stocks for the next 12 months, and a whopping 94% like what they see for the next five years. Real estate has similar approval ratings.
Nothing can go wrong! Maybe we should type that in all caps, so that it goes better with the “94% that like what they see for the next five years”. An appropriate cartoon accompanied this unabashed show of giddiness.
The 'big money' is up to its eyebrows in stocks and giddy like never before …
Not surprisingly, the bearish consensus on treasury bonds was once again the standout of the poll (for the umpteenth time in a row, bonds proved to be the most hated asset class by far) with 89% bearish on bonds and a full 92% declaring bonds 'overvalued'. Gold bulls can finally breathe a small sigh of relief: In October last year, 69% of money managers declared themselves bullish on gold, but this has now been cut down to just 35%, with 65% bearish and only 11% believing it will be the best performing asset class over the next year. Japan's stock market has found new converts – in October of last year, only 24% were bullish on Japan, right on the eve of the biggest rally since 2005. Now 62% are bullish on Japan, but only 13% think it will be the 'best performing market' over the next six to 12 months.
The details: 86% are bullish on stocks and real estate, only 11% are bullish on treasury bonds. Cash is the second most hated asset, gold is in third place, with 65% bears.
Our conclusion would be that it is probably best hold cash, treasury bonds and gold. Whenever this poll reveals extremes of opinion, it is usually a good time to look the other way.
US Stock Market Technical Conditions
We want to show a few charts briefly illustrating the technical backdrop to all this euphoria. Before we get to that, a few words regarding corporate earnings, which many survey participants cited as a major reason to remain bullish in what is, in John Hussman's words, a market suffering from “overvalued, overbought, overbullish” syndrome. In the third quarter of 2012, SPX earnings growth was actually negative; in the fourth quarter, a small gain was squeezed out. The first quarter of 2013 seems very likely to once again produce negative earnings growth. Of course many companies were still 'beating expectations' in the second half of 2012, as they jumped over the much lowered bar of continually declining earnings estimates. A significant number of prominent companies have no longer managed this feat in the current earnings season. Not even IBM, the world champion in 'earnings management', was able to beat expectations this time. This is no wonder, as there are what some consider 'depression-like conditions' in the euro area (for several countries that is certainly an apt description), where for example car sales have just fallen to a 20 year low, with severe declines recorded in a number of countries, including Germany with – 10% (Portugal: – 47.4%, France – 20.7%, Italy – 16.9%, etc.).
However, not only is the fundamental picture not as convincing as the bulls seem to think (in an example of the 'the market writing the news' to quote Bill Fleckenstein), but there are also a number of negative technical developments. We hasten to add that previous dubious technical developments have proven meaningless so far, but that is obviously not an immutable condition.
The SPX daily: RSI and MACD diverge from price for the second time in a row – click to enlarge.
The Russell 2000/SPX ratio – small cap stocks are underperforming- click to enlarge.
The NDX and the NDX-SPX ratio (black line): big cap tech stocks are underperforming the SPX, and most recently the NDX has peaked at a lower high versus a higher high in the SPX- click to enlarge.
The Barron's survey is not the only sentiment datum showing extreme bullish sentiment. Consider as an example the Hulbert Nasdaq sentiment index of stock market newsletter writers. Their recommended net long exposure was recently right back at a record high, which incidentally slightly exceeded the extreme seen at the March 2000 Nasdaq top.
Hulbert Nasdaq sentiment – just a few ticks off a record high- click to enlarge.
Since we have mentioned the Nikkei index above, it should be noted that its tendency to top out in March (which has quite a tradition) has been violated this year, as it is late April and it evidently still rising. However, the market continues to look severely overbought and ripe for a correction.
Obviously the BoJ's new 'pro inflation' mandate has helped inflate the Nikkei in anticipation, but that means ultimately that it is rising for the wrong reasons. It may also have merely lengthened the usual cycle (the rally did begin at the 'right' time). Still, from a practical perspective this means one has to continue to give the market the benefit of the doubt for now, especially if the peak of the current rally cycle continues to be pushed out further. As we have pointed out previously, that would be a change in character for this market.
Note however that a confluence of resistance levels is not too far from current levels. Moreover, there is a growing RSI-price divergence visible on the daily chart as well.
The Nikkei daily – a growing RSI-price divergence is in evidence- click to enlarge.
The Nikkei weekly – the red line indicates a strong level of lateral resistance. Note also that when the Nikkei became as overbought as currently on a weekly basis in the past, a sharp and swift correction soon ensued – click to enlarge.
Lastly, John Hussman also writes about the Barron's poll in his weekly missive, and has included the following chart as a reminder that magazine covers showing overconfident bulls in various stages of giddiness often represent a warning that the market is in dangerous territory. We should add that it isn't a bearish sign every time when Barron's features a bull on its cover. It is only remarkable in the current instance because of the poll results discussed above.
Via John Hussman: Barron's covers near significant caveat emptor moments in recent market history- click to enlarge.
To summarize all of the above: from a technical perspective it appears as though the recently begun short term correction is probably not yet over. The Barron's big money poll meanwhile suggests that there exists now significant medium to long term risk in the market.
With only 7% pessimists left, who is left to buy? One hope expressed by the fund managers interviewed was that the recent record inflows by individual investors into stock funds will continue and drive the market higher (in other words, they are in expectation of the arrival of greater fools). We believe this is a flawed theory, based on demographic considerations and the fact that many people have been worn out by the secular bear market's ups and downs. A market where performance and sentiment remain at odds with each other continues to be the US treasury bond market, which the 'big money' has hated with a passion for many years now. The pronounced bullish sentiment on gold that was still visible in late 2012 has been vaporized by the recent decline in the gold price. In our judgment, the 'big money' clearly suffers from what is known as 'recency bias'.
Charts and tables by: StockCharts, BigCharts, Sentimentrader, Barron's, John Hussman
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Gold Sector Update – What Stance is Appropriate?
The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
- Don’t Blame Trump When the World Ends
Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook. One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
- Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
- What is the Best Time to Buy Stocks?
Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity? Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
- Trump and the Draining of the Swamp
Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
- Gold and Silver Divergence – Precious Metals Supply and Demand
Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
- When Trumponomics Meets Abenomics
Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway] Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
- The Great Wailing
Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations. Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any... You’d think Washington had been invaded by Goths, now...
- Receive a One Percent Gift When Buying or Selling a Home
How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine. Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell. The people who took this photograph probably want to...
- Silver Futures Market Assistance – Precious Metals Supply and Demand
Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Taking off for real or not? Photo credit: NASA Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
- Unleashing Wall Street
To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA – Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive? Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen Oh,...
- Boondoggles for the Swamp Critters
Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running. Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge. Meanwhile... we’re coming to a deep...