Finally seeing some complacency

The flip flopping market took its turn flopping on Thursday as most of the major indices were in the red.  Small caps dodged a bullet and managed a modest gain. 

Lately it has been quite a mystery why the sentiment surveys have been showing investors as overly nervous while the market continued to make new highs.  This is finally starting to turn some as we are seeing bit more complacency out there.

In yesterday's comments I showed you that the "smart money" was starting to (pardon the pun) stock up on put options as they are getting into a more defensive posture.  At the same time the dumb, or less sophisticated, money is showing signs of getting more aggressive in their stock selections.
 
In February, investors bought over $100 billion dollars worth of penny stocks.  This figures blows away the old record.  You can see below that when the old highs, that were only in the $50 billion dollar range, were hit in 2004 and early 2005, it preceded some decent pullbacks in the Nasdaq.

  
                             Chart provided courtesy of www.sentimentrader.com

As for the AAII Investor Sentiment Survey which also tracks what we consider the "dumb money", it appears the bears are finally letting up.  Not completely, but we never did reach the 40% bearish percentage or higher that we typically get near market bottoms.  We touched 40% at the end of December and the market responded with a strong rally.  Since then the highest the bearish percent was 35%.  The new ratio of 1.69% is still in neutral territory but it is the highest mid-January. 



                                  Chart provided courtesy of www.decisionpoint.com

Last week we had an increase in both the bullish percentage, and the bearish percentage.  This week there was a decrease in both, although the ratio of bulls to bears increased as well.  The best buy signals tend to come when the ratio is less than 1.0.  We are moving closer to 2.0.

The fact that small caps did well yesterday was a plus but the broader market seemed to be led by gold and oil stocks.  Not exactly a major positive.  The economy sensitive Dow Transportation stocks, which have been doing very well lately, gave up a whopping 2% yesterday.  Is that an omen for the market, or a buying opportunity for those who missed the boat in that index? 
 
That's all for today.  Currently 100% G fund.  Thanks for reading.  Have a great weekend.
 

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