2 Reasons We May Be In for Another Sell-Off

2 Reasons We May Be In For Another Sell-Off

Even though the fundamental backdrop is favorable for stocks, the inevitability of a continued market rise is palpable. The “Pain Trade” is now clearly lower for both stocks and bonds.

There were three pieces of anecdotal evidence yesterday to support my opinion (although, obviously, anecdotal evidence has to be taken with a grain of trading salt).  First, I read that the Investors Intelligence sentiment survey, released last week, showed just 13.3% of those surveyed were bearish—which is the lowest since 1987.

Second, the cover of Barron’s was bullish. The cover story—which was about a survey Barron’s conducted involving the Chief Investment Strategists from 10 large investment managers—found that not one of them was bearish.  Now to be fair, Barron’s isn’t a mainstream publication and obviously has a more sophisticated readership than the average investor. Nonetheless, it again speaks to the inevitability of higher stock prices.

Finally, Deutsche Bank Strategist David Bianco, an ardent bear for all of 2014, has now switched and introduced a 2,050 target for the S&P 500 (previously 1,850), along with 2,150 for 2015 (previously 2,000) and 2,300 for 2016.

Again, none of these things mean equities are about to roll over, and I’m certainly not becoming bearish on stocks.  And, yes there remains healthy skepticism for the reasons stocks are rallying (the most common is a Fed-induced bubble). But for the first time in a long time, people seem very comfortable with stocks inevitably grinding higher. Yesterday’s midday sell off came with little to no fanfare – and even if there is a small dip, everyone has plans to buy it.

Again, anecdotal evidence needs to be taken with a grain of salt—but I’m just saying there has been a shift in sentiment, and the pain trade is definitely to the downside.