Joe Public

Joe Public is getting back into the stock market, just as things are starting to look pretty iffy.

I see negative divergence on every time frame from 30-minute, hourly, daily, weekly, to monthly. Since Jan. 2nd, NYSE advancers have imploded from 2744 issues to 1403 as the market has edged higher. And one of my favorite indicators, % S&P 500 ISSUES ABOVE 20, 50, and 200-day moving averages, is diverging negatively on each time frame.

Against this backdrop, consider these figures from Lipper regarding fund flows:

"Equity funds, both mutual funds and exchange-traded funds (ETFs) took in a remarkable $18.3 billion during the week ended Wednesday, January 9, according to data released late yesterday by Lipper, a division of Thomson Reuters. That is the fourth-largest weekly net inflow recorded by Lipper since it began tracking this data in January 1992.

Investors also rediscovered their enthusiasm for conventional mutual funds, which experienced inflows of $7.5 billion. That marked the twelfth-largest weekly net inflow since 1992, and group’s largest since May 2001.

This willingness to embrace risk spread to the fixed income market as well, where investors allocated an additional $5.4 billion to taxable funds during the week. Of that, about $2 billion was directed into corporate investment-grade debt funds, with another $1.8 billion earmarked for Flexible Income Funds. For the second consecutive week, municipal debt funds (ex-ETFs) experienced inflows, taking in a net $1.5 billion. That marked their largest level of inflows since the week ended October 7, 2009, and their third largest recorded since 1992."

Another group, hedge funds, is also flashing a warning. After underperforming last year, it seems they may be playing catch up. Bloomberg reports:

"Hedge funds are borrowing more to buy equities just as loans by New York Stock Exchange brokers reach the highest in four years, signs of increasing confidence after professional investors trailed the market since 2008.

Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley. Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show."

This is a toxic cocktail of data and sentiment. I hope they're right at least until 1474.51 gets exceeded. 1480s are a potential too. As is 1500-1525. But the public, along with over-leveraged players, are rarely right for long.