Click on Charts to EnlargeThe two charts above are from Sentimentrader.com. The top chart shows the percentage of mutual funds' assets in cash. It is back down below 4% now. That level was the lowest reached at bull market tops over the last several decades. What is also interesting is that despite one of the greatest stock bear markets in history, the cash % only jumped to 6% at the bear market lows this year when it easily surpassed 10% several times in decades past.
These types of data tend to be long term signals. A high cash percentage means that funds have lots of cash to buy assets like stocks. We are seeing the opposite of that now - historically low cash levels. Also, I wonder if the lack of a comparable spike in the cash percentage during this recent bear market isn't indicative of a lingering optimism towards stocks and solid evidence that the bear market psychology has not run its course yet. Anyway, I certainly would not consider adding or buying stocks on a long term basis right now personally.
The lower chart shows cash in retail (individuals, non-professionals) money market funds. Again cash levels will swell as individuals see risk, which usually happens near bottoms. And cash levels fall as markets rise and they see no need to leave money sitting in these accounts. Cash levels did swell to a significant high at this year's bear market lows. As a percentage of the S&P market capitalization, it hit about 15%. However, that has fallen substantially in recent months. After similar instances in the past the market was sideways for extended periods of time.
From these charts it seems most sensible to maintain a sideways to down outlook for stocks into next year at least. I think that most intermediate term sentiment data toward the market suggests the same. Technically the trend is still up and price is still above key moving averages. But it's too late to come to the party now in my opinion. There will likely be opportunity to buy at lower levels in the coming year(s).
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