Game of Trades: Dumb Money is going All In on the SP500 Rally
Market rallies tend to start on investor skepticism, with a few brave investors buying in. Institutional investors tend to follow, trying to keep the price from rising as the big dollar flows come in.
As a rally starts to take on steam, retail investors feel confident enough to jump into that trend. Several technical indicators can track this move – which some call the “dumb money” getting in last before prices peak.
Currently, these indicators show that investors are about as all-in as they were back in August, following the market’s rally over the summer of 2022 off the May lows.
That could be a sign of another top. Given the market’s strong performance in the first few weeks of the year, some downside is likely in the weeks ahead.
With economic data showing a slowdown and interest rates still rising, investors should expect the long-term market downtrend to dominate.
The real question on a downturn is whether or not new lows get set. The market’s lows in December weren’t as bad for some companies. And some parts of the market have had a strong performance off their lows in recent weeks.
While a downturn is likely, it will also likely follow the pattern of the past year. A drop lower, a retest of the lows, then a bounce.