The S&P 500 is less than half a percent away from hitting new all-time highs. Again.
At the same time, the S&P 500 Advance-Decline Line just closed at the highest level in its history. Participation is expanding, not contracting.
And yet, according to the latest survey data, more individual investors are bearish over the next six months than bullish.
Think about that for a second.
You’ve got price pressing against record highs. You’ve got breadth confirming with new highs of its own. And you’ve got investors leaning the other way.
That kind of disconnect is not what you typically see at major tops. It’s the type of setup that can fuel the next leg higher.
So instead of arguing narratives or debating headlines, let’s look at the evidence.
More Bears Than Bulls Two Weeks in a Row
The latest survey from the American Association of Individual Investors came out this morning.
For the second week in a row, there are more bears than bulls:.
While the S&P 500 is pressing against record highs and breadth is confirming, individual investors are leaning defensive over the next six months.
It doesn’t take much these days to spook people. A few scary headlines, some volatility, a political soundbite, and suddenly everybody’s bracing for impact.
From a contrarian perspective, that’s usually constructive.
Bull markets don’t die from too much skepticism. They die from excess optimism and euphoria. We’re not seeing that here.
And if you think this is just retail investors reacting to noise, think again.
Because the institutions are not exactly brimming with confidence, either.
Historic Outflows by Institutions
It’s not just individual investors leaning bearish. Institutional money has been heading for the exits, too.
Last week, BofA Global Research told us $8.3 billion left out the door. That was the third-largest weekly outflow since they began tracking the data in 2008:
While the S&P 500 is hovering just below record highs, big money is pulling capital at one of the fastest clips in more than a decade.
That’s not exactly the kind of positioning you see at euphoric market peaks.
And it doesn’t stop there.
The Goldman Sachs Prime Book shows hedge funds building historic short positions in Software stocks.
In other words, they’re not just lightening up. They’re actively pressing bets to the downside:
When you combine heavy outflows with aggressive shorting, you don’t get complacency. You get skepticism.
And markets tend to punish crowded skepticism, not reward it.
If anything, this kind of positioning is the fuel that can power sharp upside moves when prices refuse to break down.
So before we jump to conclusions, let’s zoom out and look at the bigger picture.
Look Around the World
When I want perspective, I zoom out.
If the narrative is that stocks are on the verge of rolling over, the evidence should show up globally. Weak markets don’t hide. They break down everywhere.
Instead, what do we see?
The MSCI Emerging Markets Index Fund (EEM) just hit new all-time highs again:
That’s not defensive positioning. That’s risk appetite.
And it’s not just emerging markets.
The Global 100 ETF (IOO) closed at fresh record highs as well:
New highs are not characteristics of downtrends. That much we know.
Major tops are not typically formed when investors are pulling billions out of equities, building historic short positions, and telling surveyors they are bearish.
That’s not euphoria. That’s skepticism.
And in bull markets, skepticism is fuel.
Add to that the fact that the S&P 500 Advance-Decline Line just closed at an all-time high, and what you have is expanding participation with growing pessimism.
That combination is not deterioration. It’s confirmation.
If you own stocks, and you plan on owning more, this is exactly the environment you want.
That’s the camp I’m in.
If they want to press shorts and pull money out while the world is making new highs, I’m happy to be on the other side of that trade.
How about you?
Stay sharp,
JC Parets, CMT
Founder, TrendLabs