Stock Market – Even At The Peak Of The Dotcom Mania, Stock Market Sentiment Was Not As Euphoric As It Is At present

It was virtually a yr in the past that I highlighted the truth that Rydex merchants had been getting very bullish once more. To be clear, I am referring to the Rydex Ratio, “or the measure of Rydex merchants’ belongings in bear funds and cash market funds relative to their belongings in bull funds and sector funds.” As of final week, this ratio fell to its lowest stage on report. In different phrases, these merchants are actually positioned extra aggressively bullish than ever earlier than, together with the heady days of the dotcom mania 20 years in the past.

And after we zoom in a bit nearer, it is fairly clear to see that over the previous few years, when bullish sentiment has come close to its latest excessive, it has resulted in powerful sledding for the stock market. Again in early 2018, after Rydex merchants revealed excessive bullishness, we had the “volmageddon” episode. Later that yr, stocks swooned once more after bulls grew to become so brazen. Lastly, December final yr additionally confirmed a peak in sentiment that proved to be one other good time for contrarians to, “be fearful when others are grasping,” as Warren Buffett famously put it.

Clearly, merchants have develop into intoxicated as soon as once more by the energy of the rally off of the March lows. And with a lot of the main indexes up 50% or extra over that span, who can blame them? It has been a historic run. Nevertheless, for these attempting to take the market’s temperature right here, it is exhausting to shake off the sensation that we have now crossed the boiling level. Because of this, the stock market may be susceptible to a different reversal.

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Editor’s Word: The abstract bullets for this text had been chosen by Looking for Alpha editors.