Tuesday, June 23, 2015

Missing: Bulls

We continue to be fascinated by the level of skepticism that grips this current market.  In recent days we've seen evidence, both anecdotal and statistical, that investors are anything but too bullish even though markets are at or near all-time highs.  Just today, the Russell 2000, Nasdaq and the S&P Midcap 400 made new highs while the S&P sits less than 1% from its high water mark.

Further, the S&P has yet to have a 5% pullback in 2015 and it's been more than 900 trading days (more than 3.5 years) since it had a 10% correction.  It's been a frustrating slow grind higher that's failed to convince most participants that further legs higher are coming.  Per Jeff Saut of Raymond James, the Dow Jones Industrial Average so far in 2015 "has somehow managed to oscillate some 13,000 points between its hills and valleys despite only gaining 296 points YTD as of yesterday’s close." These conditions have gone on to create an environment where investors, and especially the media, cry panic at the sight of even the slightest pullback.  Over the last few months, each time the market has fallen over a multi-day period, the bears come out of the woodwork insisting this is "the one."

As a result, we've sensed an attitude from some corners that this market just isn't for them.  That they've missed their chance to participate.  Here's more from Saut regarding a recent email he received:

"In last Friday’s Morning Tack I shared an email from one of our particularly insightful Financial Advisors (Peter Muckerman) who wrote:"

I have been buying the Barron’s every Saturday for the last 20 years, and the local grocery store where I buy it only orders about 5 of them. They are never sold out and what’s possibly more interesting is that they have stopped carrying the IBD. Now, I find this to be somewhat interesting only from the respect of the public’s lack of interest in the stock market.
Also, this is profoundly interesting since one of the panelists speaking up on the Hill in regards to the recent “DOL Proposal” noted that: “some 50% of all TSP money is sitting in the G Fund.” Now, that is striking to me, and it tells me: 1) They have gotten no advice, 2) Has the Government failed in their own fiduciary responsibility to educate their work force?, 3) the general public still hates the stock market, and 4) The market has further to run on the upside.
To clarify Jeff wrote:

"Now I lived in the D.C. area for years and therefore am familiar with many of the acronyms. But for those of you that are not, DOL stands for the Department of Labor and the DOL proposal would change the way investment advice is given for retirement accounts. On Tuesday a House bill was introduced to stop the DOL’s proposal to change investment advice standards for retirement accounts. TSP is the acronym for Thrift Savings Plan, and the G Fund is basically a Treasury-centric money market fund. Now that we have the acronyms right, we can better understand Peter’s point. The investing public has very little interest in stocks, which is yet another reason we are a long way from the end of this secular bull market."
Worch here -- if this statistic about Department of Labor retirement accounts is accurate and half of all assets sit in what's essentially a cash account, that is a pretty staggering figure.  It goes to show just how distrusted this bull market has been.
The various sentiment polls also echo this stance.  The most recent AAII Investor Sentiment Surveys have been flat out bland.  Survey participants are at their most neutral levels in over a decade and the number of bulls has been at historic lows for months now.  Per Ryan Detrick, "the recent 8-week MA of the bulls came in at just 26.96%, this incredibly was the lowest reading since the week of the March 2009 low!  Below shows all the times this reading came in less than 28% going back 20 years.  Nailed the 2003 and 2009 lows and caught a low in 2005 before a nice move.  The one caveat is it was drastically wrong in 2008."

It's said that the stock market aims to frustrate the majority and that certainly seems to be what's occurring here.  People just can't get fully comfortable with owning stocks and want a reason to press the sell button.  So, how does the market continue to frustrate from here?  By grinding along higher and not yet offering that 5-10% pullback that so many are anxious for.  If it stays in this mode, it's hard to see excessive bullishness setting in any time soon.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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