Yet Another Indicator That the Bull Market Might Be in Trouble
It is a percentage measurement of how much cash that mutual funds are holding. Today, we stand at a market low of 3.3%. Prior to bull markets ending, the cash levels in mutual funds were at very low levels. Before the Bear Market of 2000 and 2007 the levels were around 4%. Today we are at 3.3%.
Why is that so negative? First, that means there isn't any cash to buy stocks to push the market higher. Second, this means that mutual fund managers are over confident and over confidence is always present before a fall.
Plus there is a domino effect that occurs when a bear market gets going. Since the mutual fund managers have a low level of cash they have to sell stock in the event that investors want out of the market. More selling creates more losses for the stock market. I do think that investors will bail in the event that we see big losses.
The bottom line is that when the crowds or the large percentage of investors are this overly confident, typically the crowds are wrong. Investor beware!