BofA’s proprietary measure of investor sentiment is clocking in at extreme levels.
According to the firm’s Bull & Bear Index, which tracks sentiment using indicators like hedge fund market exposure, fund flows, long-only investor positioning and so forth, investors are more bullish than they were in 99% of periods since 2002.
The current B&B reading is 9.6 (on a scale of 0 for max bearish and 10 for max bullish). It suggests investor sentiment is currently more bullish than 99% of all readings since 2002. Extreme bullishness is characterized by robust inflows to EM equity funds, overbought high-yield credit markets relative to treasuries and aggressive hedge fund positions for a weaker yen and stronger oil prices.
One of the most elusive and fickle trends that professional investors constantly refer to is risk appetite. You’ve surely heard the terms “Risk-on” and “Risk-off” used to describe how willing (or reluctant) investors are to play in traffic, so to speak, and take on the uncertainties of the market. While stocks are off to a great start in 2013, at least one trend watcher says he’s picking up warning signs that the good times might be coming to an end.
“The high yield (HYG) and junk bond (JNK) ETFs track the S&P 500 very closely,” says Jonathan Krinsky, chief market technical strategist at Miller Tabak, in the attached video. “But when you see them start to diverge, it just brings up a yellow light,” he says, adding that it ”just makes you wonder, why is the S&P still rallying?”
As much as he says this divergence is early and “could mean nothing,” Krinsky also says the trend resembles previous meltdowns and is just good policy to heed such things. “When you see stocks making fresh highs you’re always looking for that situation that makes you take a pause. This is one of those situations.”
At the same time, Krinsky says a second divergence is underway, which also suggests that the tolerance for risk-taking may be waning.
Automatic spending cuts are almost here.
We’re getting even closer to March 1, the day the “sequester” kicks in, and automatic across-the-board spending cuts go into place that would slam the military and harm the economy.
The latest talk from this weekend’s Sunday shows indicate no change.
The GOP seems willing to take the cuts. There’s virtually no movement.
ART CASHIN: America’s Worst Tragedies And Stock Market Crashes Occurred During The Year Of The Snake
Of all of the Chinese Zodiac years, the year of the snake has historically been the worst.
In his latest note, UBS’s Art Cashin goes through some of the bad ones.
Will The January Effect Get Swallowed By The Snake? – The ever-alert Jim Brown, over at Option Investor, notes that the year of the snake is historically the least bullish of the twelve signs in the Asian zodiac. The prior snake (2001) saw a loss of 13.1% after losing 28% at one point. In the snake before that (1989), the S&P did manage a gain of 9.7%, while 1977 saw a loss of 17.5%. Rick Weissman of Gleacher and Company cited the rather spotty event record for past years of the snake. We saw things like 9/11 (2001), the attack on Pearl Harbor (1941) and the stock market crash (1929). Super Bowl and January are on the bull’s side, while the snake threatens on behalf of the bears.
Years we wish we could forget.