Here's your "lost decade" update: The S&P 500
(ChicagoOptions:^GSPC) has risen nine out of the past 10 years and
in 2013 just posted its best yearly performance in a decade. Have
stock market investors become spoiled and overconfident?
Measuring the stock market's mood or "sentiment" through news
headlines, surveys, and data give us clues about the psychology of
investors. Why does it matter? Because sentiment extremes (bullish
or bearish) frequently point to major turning points in the market,
and a high profit opportunity for alert investors to pounce.
Let's examine three points that tell us about the stock market's
Among financial professionals, most CFA Institute members (63%)
think the global economy will expand in 2014. Should this kind of
confidence in both financial conditions and stock market prices
2014: Year of the Bear for Chinese Stocks?
Global stocks, as tracked by the Vanguard Total World Stock
Index ETF (NYSEARCA:VT) climbed 17.12% in 2012 and added another
22.95% in 2013. The belief the hot streak continues is firmly
Curiously, just 40% of CFA members were optimistic about the
worldwide economy in 2013, while even less (34%) were hopeful the
year before. Will this year's CFA survey, like previous years, turn
out to be contrarian indicator for equity investors?
Subdued Stock Market Volatility
The public's fear of losing money in the stock market
(NYSEARCA:DIA) has been replaced by the fear of missing out. That's
one way to describe today's market psychology. And a lack of stock
market volatility is a telltale sign of how wide spread the
fearlessness has reached.
Wild swings stock market volatility, as measured by the CBOE
S&P 500 VIX (ChicagoOptions:^VIX), have been nonexistent for
three months. After spiking to 20.34 in early October, the VIX
(NYSEARCA:VXX) has collapsed almost 39% back toward 12.
A world without volatility or fear isn't how healthy markets
operate. For prudent investors, the message is clear; a fearless
stock market is a dangerous place to invest.
Record Margin Debt
As stock prices rise, investors are buying at higher and higher
prices with borrowed money. NYSE margin debt has risen for five
consecutive months and is at $423 billion - a record high! (see
Almost every major market top, and subsequent correction or
crash, is associated with excessive leverage and excessive risk
taking. Never before in history has a voracious borrowing binge by
investors with margin debt ever had a happy ending. Will this time
Profit Strategy Newsletter
uses technical and fundamental analysis along with market history
and common sense to keep investors on the right side of the market.
In 2013, 70% of our weekly ETF picks were winners.
Follow us on Twittter @