When Rabid Buying Meets Reality

After years shunning anything that even smelled like a stock, investors collectively decided to throw record amounts of cash at the market last month.

The whole situation was baffling. People don’t usually change their attitudes that quickly — especially when it comes to investments. So you can understand why record stock fund inflows coupled with this huge rally became a bit of a concern.

However, some new numbers show some sanity has entered the fray. As it turns out, the average investor isn’t going all-in this early in the game…

TD Ameritrade’s Investor Movement index shows that even as stocks continue to rise, investors haven’t been shy about hitting the sell button.

Why bother looking at a proprietary TD Ameritrade indicator? Because those are the guys that have your money. They know when you buy and when you sell. Their information is based on actual investor behavior — not some survey.

In the newest data, you can see a big divergence emerging on the chart. Investors are getting defensive while the S&P 500 cruises higher.

So what the hell does it all mean?

Short answer: I’m not completely sure…

The divergence might end up as nothing more than an anomaly. But the index doesn’t reach back too far — so it’s difficult to say how the market might react as it slumps.

What we do know is that investors aren’t as gung-ho as we thought just a couple of weeks ago. The emotional climate has found some balance.

That’s helpful when it comes to the longevity of this rally — and the hopes that the market will pull itself out of the sludge bucket affectionately known as the lost decade.

Best,

Greg Guenthner
for The Daily Reckoning