Don't Blame Crazies For This Steep Rally

I'd love to tell you that bulls have been sniffing glue and that they are long overdue for a brutal comeuppance. However, it turns out they are anything but wild-eyed, and their expectations are relatively subdued. AIAA's most recent survey found that 35.3% of investors are 'neutral' right now the highest percentage in seven months. As for bulls, they are at 39.3%, only slightly above the 38.5% historical average.

This seems incredible, given that stocks have been in a vertical climb since January despite a pronounced slowdown in U.S. housing, autos and retail, and signs of distress from two of the world's biggest economies, China and Germany. Despite these considerable negatives, the Dow ended last week within striking distance of record highs. If the blue chip average were to exceed the peak shown in the chart this week, bears had better dive for cover.

Going With the Flow

Corporate buybacks and safe-haven money from just about everywhere else in the world seem incapable of powering the rally indefinitely, especially if corporate earnings have peaked as seems likely. But for now we can only go with the flow and hope we are nimble enough to avoid getting trampled when it reverses.

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