Warning signals

I recently heard a story of an ex-option trader. In 2000, while he was at a swimming pool, the closing announcement of the pool manager through the speakers included that the AEX hit another all-time high. That was the moment he thought this was the end of the run. And oh my, was he right. The AEX went from 700+ down to 199 at its low point in the burst of the dotcom bubble.

The reason behind it is, when stock markets and investing is such common place for retailinvestors that even at the pool announcement is made, that very often has proven to be a sign of (big) market corrections.

And what do we have here?

Retail Investors Go All-In on Stocks

Equity allocations in the AAII survey reached 71.8% in September, up 0.7 percentage points—the highest since December 2017 and the second-highest reading since July 2000.

Since April, stock exposure has climbed 3.3 percentage points.

Meanwhile:

• Cash allocations fell to 13.3%, their lowest since December 2017.

• Bond allocations edged up to 14.9%, still below their historical average of 15.9%.

More stocks. Less cash. Retail investors’ appetite for risk is running high.

What else? Financial insiders are buying their own stock at the slowest pace in nearly 23 years

A new report from VerityData showed that the number of financial executives buying shares of their own companies fell to a nearly 23-year low during the July-to-September quarter.

Just 298 financial-sector insiders bought shares in their own companies in Q3, the lowest number in VerityData’s records dating back to 2004, according to Fortune.

The previous low was 302 buyers in Q3 2024. Across the broader market, the number of insider buyers fell 18% quarter-on-quarter to 1,290.

This signals a lack of buying conviction, rather than an unusual surge in selling, so perhaps a slow bleed, rather than a sudden crash. Although we never know what is just around the corner.

Furthermore, the Nasdaq-100 nears a record with just 6% of stocks making new highs.

The index is pushing higher, but few constituents are reaching new highs alongside it.

Would you like more indicators?

Technology Select Sector SPDR Fund reached a new all-time high on Friday, yet just 2.7% of stocks in the sector made new 52-week highs. That’s a striking gap between the sector’s headline performance and participation beneath the surface.

Fragile? You bet ya!

Sources: Fortune / VerityData, TheKobeissieLetter, MarketWatch, Bespoke, Apple Tree Capital Partners