My biggest problem with the market here is it seems like everyone is bullish. Remember late August, when the world was ending because of Syria worries? A big rally in September and a huge rally in October have quickly turned the masses into bulls. As one of the guys who has been saying “buy” all year, I don’t like seeing everyone turning bullish here.
Check out the recent Investors Intelligence poll data. Sure, this is just one set of data; still, it is eye-opening, to say the least.
First off, bulls are up to 55.2%, matching the peak from May — right before a 6% dip. The last time the bulls were higher was 57.3% back in April 2011. This was near a major peak and right before an 18% dip over the coming months. Now, most of that drop occurred on the U.S. debt downgrade in August. Still, it happened.
Next up, the bears are down to just 15.6%, the lowest level we’ve seen in 2013. In fact, this is the lowest level of bears since 15.7% in April 2011. Going out further, the previous two times the bears were this low was December 2009, and before that, March 1987. Below is a chart that gives anyone without a bias some major pause.
Lastly, the difference between bulls and bears is clear up to 39.6%, closing in on the 41.6% spread from April 2011.
Now, with all of that said, here’s where I’m personally stumped. Sentiment polls are frothy, various put/call ratios are showing complacency, and just about everyone they trot out on TV is looking for a year-end rally. My issue is nearly every study I do confirms one thing: A strong first 10 months = a strong final two months.
Here are two examples.
Going back 40 years, when the SPX is up more than 20% after October, the November-December period has been higher every single time and stronger on average than your typical November-December.
Next, when the usually bearish months of September and October are both up more than 2% (they were this year), the normally bullish months of November and December actually do better, doubling the average return going back 100 years.
So although the sentiment poll data is very concerning, my take is — don’t give up on the bulls yet, as history continues to side with them.