Yesterday in the office, we were discussing when to take a little something off of the table. This upthrust has been very strong (itself a positive), but we tend to be wary when rallies are seemingly built on rumors. The 19th trial balloon of some new ECB intervention should not trump slowing fundamentals and peaking earnings.
With many of our holdings at multi-year highs, is this where we sell a bit of the long exposure? The key to running an asset allocation model is not so much what to do, as when. Is now the ideal time to sell?
I have called this move off of the March 2009 lows “the most hated rally in history.” The discontent of underinvested fund managers has been a positive. Indeed, the Bill Gross comments on the end of the cult of equities yesterday was itself bullish (I’ll have more to say on Gross later this week).
But its not just the Pimco boss; according to Merrill Lynch’s quant group, Wall Street’s “sell side strategists are now more bearish on equities than they were at any point in the last 27 years.” And we know as a whole, this group tends to get it wrong at key inflection points.
After the Fed liquidity fountain, this is perhaps the single most bullish thing I can think of. The difference being the Fed juicing is an artificial external input into markets; excess bearishness is pure behavioral finance at work.
Equity sentiment hits a record low
Equity and Quant Strategy
BofA Merrill Lynch 01 August 2012
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