As we entered the new decade, the Dow Industrials topped 29,000 for the first time ever — as the longest bull market on record plows on.
That’s right, the stock market has been going up for nearly 11 years!
You might think that this record-long uptrend would make investors a bit cautious.
But, in many quarters, stock market sentiment remains elevated. Here are a couple of samples from the financial press:
Tech Valuations Are Stretched, But Investors Are Still Bullish, Survey Finds (Barron’s, Jan. 6) 11 S&P 500 Stocks That Could Soar 20% or More in 2020 (Kiplinger, Jan. 10)
Also, our just-published January Elliott Wave Financial Forecast showed this chart and said:
The stock market now rests upon a rare extensiveness of bullish expectation… The chart shows [an] indicator tracked by SentimenTrader that has just hit an all-time high. On December 26, Rydex investors held $28.17 in S&P 500 and NASDAQ 100 funds for every $1 in their bearish counterparts. The prior reading that came closest to the current one was $27.3, which occurred on January 31, 2018, five days into the start of [a sharp stock market decline].
Does this mean that the broad market is poised for a quick 10% correction, like what occurred within a two-week period from late January into early February of 2018?
Well, the Rydex Total Bull/Bear Ratio is not intended for short-term timing, However, the historical facts speak for themselves.
Plus, our observations over the decades reveal that extremes in sentiment usually serve as a contrarian indicator.
As a classic Elliott Wave Theorist notes:
When investors believe with deep conviction that a market can go only in one direction, they are likely already positioned. That’s when the smallest tip of the balance can start a movement in the other direction.