Running of the (New) Bulls

What began as a sluggish summer has turned into market free-for-all.

“Another ‘dull’ summer drift higher in the S&P 500 and Russell 2000 looks to make it 8 straight days higher,” reported Bespoke Investment Group yesterday afternoon. “Only one down day so far in July.”

It’s no secret that the broad market is streaking higher at a torrid pace. That means the chase is on for the new bulls…

The broad market is up 7% since June 24th (and keep in mind, this is a span of just 21 trading days). Everyone who missed the boat is trying desperately to catch up.

The new bulls are everywhere. The short side of long market blog has compiled a big list of sentiment surveys that perfectly document the growing bandwagon. Here’s a taste:

Bullish readings on the American Association of Individual Investors survey rose by 7%. Bearish readings fell by 5.5%. “The AAII bull ratio currently stands at 73%,” Short Side of Long comments, “which indicates extreme optimism amongst the retail investment community.”

Of course, AAII isn’t the only game in town. A handful of other surveys clearly show the consensus is shifting to the bullish side of the street.

However, now is not the time to allow your contrarian instincts get the best of you. Clearly, the crowd is becoming more enamored with stocks at the moment. But the dumb money isn’t the only force pushing the market higher. I suspect that the “pros” who have consistently underperformed the broad market are playing catch-up with everyone else this summer.

You might be tempted to try to step on this market’s neck. But that could turn out to be a major mistake. Doubt the power of the “chasers” at your own risk. Sure, stocks are ripe for a pullback. But market internals are strong and latecomers can push stocks higher much faster and farther than you could imagine.

Take some gains off the table if you must. But if you aren’t chomping at the bit to buy this market on the dips, you haven’t learned a damn thing this year…

Regards,

Greg Guenthner
for The Rude Awakening