What a short memory for investors out there! Just 2+ months ago, you smelled extreme bearishness and no one wanted to buy stocks. In early Oct 2011, I said it was the time to buy stocks. One of the main reasons was that the volatility (VIX) was extremely high back then over 40. As I said, VIX should drop from that level as it was unsustainable at such a heightened level. For sure, VIX has come down quickly in the past 2 months, so fast that it has dropped below 20 now. I really did not expect this kind of speed. This means investors suddenly change their mood now and feel quite happy. So the volatility becomes lower and lower and the stocks keep going up. If you followed me to buy stocks, especially gold stocks back then, you should be very happy also. But I will be very surprised to see stocks go further higher from here without first experiencing some sort of crash.
Contrary to the extreme pessimism 2+ months ago, everyone has shifted to an extreme bullish sentiment nowadays. The weekly survey from the American Association of Individual Investors (AAII) showed that bullish sentiment increased from 47.2% to 48.4%. Accordingly bearish sentiment plummeted to 18.9% from 23.6%. This low bearishness has not been seen since 2006. What kind of extreme! No question, investors become very complacent again, having forgot all the pain already. Actually there is kind of panic out there that everyone is afraid of being left behind. So there is a high urgency for them to jump into the stock market whenever there is a dip. I think this is usually a contrarian indicator that a crash is coming. I bet it will happen in the next week or two. Of course, I'm not thinking this will be a huge crash but still will be significant. Actually I start to play with VXX again to bet it will jump up soon.
If you are itchy to buy stocks now, I will advise you to wait for a while.
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