The Market is staring at the perfect pitch- underinvested short-term market timers. Only 25.9% of the ones tracked by Hulbert were in the market as of last night? How much higher is this market going? Let's use a poorly-defined yet well-understood technical term- way higher.
What's going to drive it? No, not QE2. It's earnings, baby, earnings.
Don't confuse my bullish bias with any desire to buy and hold- I plan to sell/short on strength + repurchase on weakness all the way up.
Consider the average recommended equity exposure among a subset of short-term stock market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). It now stands at 25.9%.
To put the current HSNSI level in context, consider that it stood at 65.5% on April 26, the day of the market’s closing high prior to the May-June correction. In other words, the average stock market timer today is less than half as bullish as he was in late April.
Since the usual pattern is for advisers to become more bullish as the market rises, and more bearish as it declines, the current low level is quite surprising — and bullish.
Furthermore, the current HSNSI means that the typical short-term timer still has three-quarters of his stock portfolio in cash. That represents a lot of sideline cash that could propel the market higher, should these timers decide to once again turn bullish.
They are likely to do so in droves if and when the market surpasses its April high. Don’t be surprised if the market thereafter turns in a few explosive days on the upside.