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MARKET SAVVY | Savvy Confidential: A Briefing for Investors

Newsletter Bullishness Runs High, and That's Troubling Sign for Stocks

May 21, 1999|WALTER HAMILTON

Who cares about rising bond yields and the recent lackluster performance of big-name stocks? Apparently not investment newsletter writers--so far.

Bullish sentiment among newsletters is nearing a 12-year high, according to Investors Intelligence of New Rochelle, N.Y.

According to the survey done last week, 60.9% of advisors are bullish. That's just off the recent peak of 61.2% in February, which was the highest since the 64.6% registered in January 1987.

In the contrarian ways of Wall Street, high bullishness--and correspondingly low bearishness--is considered troubling. Extreme bullishness can indicate that investors are fully loaded up with stocks and have no fresh money with which to power the market higher.

"Everybody's fat and happy," said A.C. Moore, chief investment strategist at Dunvegan Associates Inc. in Santa Barbara.

By comparison, bullishness was 60.8% in late-August 1987, the week the stock market peaked in advance of that October's crash.

In 1987, however, bearishness was extremely low. Only 19.2% of newsletter writers were bearish then, as opposed to 28.7% now. At the moment, another 10.4% expect a "correction," or short-term market pullback of around 10%.

The market has shown it can rise even when bullishness is high. For example, stocks climbed from mid-November through early January even as bullishness hovered in the upper 50s.

Historically, however, high bullishness has usually occurred near market peaks, and low bullishness has usually occurred before major market rallies.

Last September, for example, advisor bullishness dropped below 40% amid the global market turmoil following Russia's currency devaluation. The bearish camp rose to near 50%.

As it turned out, that was exactly the time to buy stocks, not sell them: The market bottomed in the first week of October.

The most recent drop in bullishness, from early-February to early-March, coincided with a 10.4% pullback in the Nasdaq composite index.

Given the contrarian nature of the bulls/bears data, "We'd read this [latest survey] as certainly being something to worry about," said Michael Burke, Investors Intelligence co-editor.

Bullishness could fall in the next newsletter survey, in the wake of Tuesday's announcement by the Federal Reserve that it is leaning toward raising short-term interest rates.

Long-term bond yields jumped early this week to their highest level in 12 months, though they have settled back slightly in recent days.

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Bulls Still Running

Almost 61% of investment newsletter writers are bullish on stocks, according to the latest weekly survey by Investors Intelligence newsletter. A reading above 60% is viewed as dangerously high because it hints at a fully invested market.

Bulls as of Thursday: 60.9%

Bears: 28.7%

Correction*: 10.4%

*Writers who aren't bullish or bearish expect a short-term market pullback of 10.4%.

Source: Investors Intelligence

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