To Think Contrarian Right Now, Be A Bull

Submitted by Wall St. Daily as part of our contributors program

With the market on such a tear, you may feel that it’s time to don your “contrarian” cap and bet on a pullback.

However, doing so wouldn’t be contrarian at all.

You’d just be part of the crowd.

Just check out this chart that’s been circulating this week. It comes from Mary Ann Bartels of Merrill Lynch with data taken from Investors Intelligence.

It simply measures how many newsletter writers are calling for a pullback.

And predicting a pullback is the popular thing to do right now.

Too popular, in fact.

As you can see, it’s at very high levels.

So, rather than investors becoming too complacent and optimistic, they’re actually quite timid at this point.

Barry Ritholtz drives the point home further: “When too many investors are looking for a correction, it reflects that selling has already occurred.”

So the true contrarian bet is to be a bull.

This just serves as further proof that, while the market is surging, sentiment just hasn’t gotten frothy enough to suggest a pullback.

Let’s look at another sentiment measure ­– the American Association of Individual Investors Bullish and Bearish Readings.

By taking the spread between the bullish and bearish ratings, we can see where exceptionally high or low readings show upcoming pullbacks or market bottoms. (It’s especially good at picking bottoms.)

Right now, the ratings simply aren’t high enough to suggest that a pullback is imminent.

Now, at some point we’ll need to see a little pullback, just to release some pressure. But I wouldn’t bet on it happening just yet.