A 10 YEAR HIGH THAT HAS INVESTORS RUNNING SCARED
This article also featured on TheStreet & Fidelity
There are different points in time since the mid-90's that I can classify based on their ability to produce fear and greed on either a short-term, intermediate-term or long-term basis. What I mean by that is that I have vivid memories of the manner in which pullbacks were greeted during each time period or market cycle. The amount of fear during each time period was determined by what had occurred in the period preceding.
For example, there was little fear during the pullback that started the internet collapse in 2000 since we saw a near uninterrupted bull market in the years prior. Following the internet bubble collapsing it took a period of YEARS for investors to finally understand that dips should not be bought. It was only when this fact was understood completely that the markets were ready to move the other direction. All the excesses had been unwound. Fear was easily generated through even the most moderate of pullbacks.
Fast forward to 2007-2008. Retail investors were too busy getting rich off of their homes to pay much attention the markets. It was the institutions, hedge funds and professionals who were going to be victimized this time around. The collapse that occurred in 2008 was a direct assassination of the professional investors psyche. Those hedge fund and institutions that survived are like battle scarred war vets. They jump at every loud noise and are startled by small children making sudden movements.
We are now at a point in the financial markets when even normal pullbacks, such as the one we saw over the past several weeks, are greeted by a mentality that anticipates the end of world imminently arriving. This creates the proper dose of fear necessary to make bullish moves like we have seen the past few days. Of even greater significance is the fact that the move up we are seeing currently is being greeted by the same skepticism that said the markets had more to go on the downside last week.
You can see the eager attitude with which investors will take on a bearish stance by the squeeze in companies with a high amount of short interest over the past few days. Last week I presented 5 stocks that I came up with as a result of a scan that pinpointed companies showing relative strength during the bull market run. I scanned for a high amount of short interest, low float, market cap under $2 billion and a few more qualifiers. That portfolio is up 12% since last week.
A boatload of other companies that I track with high amounts of short interest and skepticism have also produced spectacular gains over the past week. What this tells us is that professional and retail investors are too quick on the trigger to disregard the fact that we are in a powerful bull market. Investors are scared out of their positions quickly. Even worse, since we are in a market dominated by professionals, short positions are taken on in an effort to profit from what turns out to be a standard pullback within a bull market.
We're sitting at 10 year highs on the Nasdaq 100. We are witnessing a marketplace that is dominated by professionals with nervous ticks from the shrapnel they took to the forehead in 2008. We have an S&P that has been consolidating within an enormous sideways range for an entire decade. All the meanwhile, corporations have been strengthening their balance sheets. Innovation has been occurring at a pace that is forcing human beings to morph into an information driven, hybrid robot race. And, oh yeah, the rest of the world is trying to make up for lost decades of lagging behind by investing in infrastructure, technology and creation of a middle class to duplicate what we used to be.
I think I'll be wearing my bull costume for sometime to come.
