Friday, September 11, 2009

If Sentiment Is Improving On Wall Street and Main Steet, Why Are Big Investors So Bearish?

The market is continuing its stair-step higher, after some upbeat reports hit the wires this morning.

First, FedEx (FDX), which is considered to be a good barometer for the overall economy, raised its earnings guidance and said its seeing signs of improvement in the economy. Also, the Univ. of Michigan consumer sentiment survey rose to 70.2, up strongly from the 65.7 reading seen in August.

With signs of an improving economy, and positive signals coming from the daily action in the stock market, it is surprising to see so many large investors still so bearish. I recently stated that while many expected a pullback in September, if bearish sentiment spiked higher the way it did back in July, that would likely mean another shallow pullback at best. And that is exactly what transpired.

To wit, today's release from Greenwich Alternative Investments showed a huge increase in bearish sentiment among Macro Managers. Those managers that are bullish fell from 40% in August to just 13% in September, while bearish sentiment rose from 50% to 66%. Additionally, the AAII survey yesterday showed bulls dropped to 37%, while bears rose to 44%. I am surprised to see bears outnumber bulls at the same time the market is making new yearly highs.

Until we see a more pronounced rise in bullishness, I think that the pattern of shallow pullbacks will continue. The 10-year yield is down again today, to 3.29%. The persistent drop in yields is a bit concerning to me, and something to keep an eye on.

Trading comment: I am taking partial profits in some recent trades, WYNN and PAAS. Both have had nice bounces. These moves don't make me less bullish, I just want to be active in taking profits and trading around my positions.



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