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[nimblebear]

think again. Just check out what happened in 2007.

"SEC filings show that usually astute corporate insiders have been selling into the market strength of the last few months at a near record pace, even as investor groups that have a history of being wrong at market turning points (extremely bearish at market bottoms and extremely bullish at market tops) have taken the opposite position.

For instance, mutual funds have a history of holding high levels of cash at market bottoms and being fully invested at market tops, and they have stepped up their buying in the last two months. Bank of America/Merrill Lynch reported this week that its latest poll of large fund managers, conducted between November 5 and November 11, found their sentiment to be the most bullish since April, that they have invested just about all they can, now holding on average only 3.5% of their investors’ assets in cash reserves to meet potential redemptions, one of the lowest levels of cash on record.

The latest sentiment report by Investors Intelligence, which measures the sentiment of investment newsletters, shows 56.2% are bullish, only 20.2% bearish, the highest level of bullishness since December, 2007, which was a couple of months after the severe 2007-2009 bear market began.

And the weekly poll of its members by the American Association of Individual Investors, showed sentiment had reached 57.6% bullish last week, its highest level in a number of years, higher than just before the 2007 bull market top (54.6% bullish), higher than just before the top in January of this year (49.2%) and higher than just before the April top (48.5% bullish).

It plunged to only 40.0% bullish this week, which had some pundits saying, “Ah, that removes the risk from the investor sentiment side.”

But unfortunately that’s not how it usually works.

The market was down sharply last week and the first three days of this week. So sentiment would be expected to be less bullish this week. But once a warning level of bullishness has been reached, a return to lower levels doesn’t usually make any difference.

For instance, at the bull market top in 2007, bullishness reached 54.6% on October 11. The market had already topped out two days earlier. The next weekly reading on the AAII poll showed a drop to 41.9% bullish, and two weeks later to only 31.2% bullish. Those subsequent drops in bullishness were of no importance, the 2007-2009 bear market was underway.

Similarly, at the April top this year, the AAII poll reached its high of bullishness at 48.5% on April 15. It dropped to only 38.1% bullish the next week. But that was of no importance. The peak of bullishness had been reached. The market topped out into the April-July correction on April 23, a week after the high reading. "

From Sy Harding.


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