Then there are all of my favorite technical indicators, which show that the market is overbought, and I get even more nervous.
Such extremes in sentiment and technical signals are inevitably followed by sharp pullbacks in the market.
Low Volume, Low Volatility
Meanwhile, all of this is happening on low volume. In fact, volumes are so low that a lot of folks who trade numbers on a screen for a living at the large investment banks are on the verge of being given pick slips. There’s just not enough for them to do.
The conclusion from low volumes is more ambiguous.
On the one hand, low volumes suggest a lack of conviction. A lot of investors are sitting on the sidelines and haven’t dipped back into the market.
On the other, low volumes also signal that we are hardly at the stage of a market mania that portends a market collapse.
As John Templeton observed, “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
Judging by the low volumes, there is still plenty of skepticism out there.
And I bet you’re not getting stock tips from your shoe-shine boy.
I expect the market to pull back over the short term, based on its current overly euphoric sentiment.
But thanks to stimulus efforts of Mario Draghi and good economic news in the United States, the market still has plenty of upside for the second half of 2014.
In case you missed it, I encourage you to read my e-letter column from last week aboutfive dividend-paying dandies.
Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.