The scale, speed, and time of the equity rally of the last five months or so echoes loudly the post-Jackson Hole rally in 2010 (from AUG10 to FEB11) and while the aggregate money pumpers of the world have done their best to keep the pedal to the metal (gold?), we worry that just as before we are running out of greater fools to buy assets at the margin in the hope that they will be first through the gates when the spigot gets turned off (or at minimum turned down). Sentiment is peaking, the number of bulls in the AAII survey is rolling over (just like in DEC10/JAN11), the number of bearish respondents is troughing (just like in DEC10) and the ratio of Bulls to Bears (having approached record highs) is now rolling over (just like in DEC10/JAN11). With energy prices surging (as they did in Q4 2010/ Q1 2011) and expectations high for the next round of gross money-printing (forget supposedly better US fundamentals, QE3 is here any minute apparently and LTRO 2 will be enough to build a real Death Star [3]), we fear once again that hope has exceeded its credibility and with financials showing some cracks in their armor (in credit for sure and now in stocks too), perhaps the less-than-greatest fools are leaving the building early.
[4]
The upper pane shows the 'scale invariance' of the Jackson Hole QE rally (green arrows) relative to the current Twist/LTRO/Global pump-and-dump rally. It also shows (red arcs) the similar rolling over of the Bullish/Bearish Ratio of the AAII readings.
The middle pane shows the Bullish sentiment rolling over.
The lower pane shows the Bearish sentiment rising.
Of course, we could be facing the double-bluff of the contrarian contrarianist but given the previous experience, we suspect not.
Chart: Bloomberg