INVESTORS ARE INCREASINGLY SHOWING RISK-ON BEHAVIOR
Investor sentiment is tilting toward risk-taking, particularly in microcap shares, high-beta stocks and initial public offerings, according to SentimenTrader’s Jay Kaeppel.
Data show the ratio of microcap stocks to the S&P 500 Index CBOE:SPX recently hit a high on June 25, signaling bullishness for smaller-cap equities.
"When the relative ratio is high, investors are showing risk-on behavior. When the ratio drops to a low level, they are exhibiting risk-off behavior," Kaeppel says.
A separate gauge of appetite for volatile stocks — the ratio between S&P High Beta and S&P High Quality — also crossed a threshold of 85 in recent weeks.
"The recent flurry of signals suggests that investors are still willing to bet on higher stock prices. This bullishness typically provides impetus for a continuation of the current uptrend," Kaeppel says.
Demand for IPOs remains relatively strong, with indicators pointing to risk-on positioning. The IPO-to-S&P 500 relative ratio rank moved above 55 on June 23.
"A strong preponderance of risk on behavior generally suggests that investors are in a buying mood and that a rally - even one that may appear to be overextended - may still have further upside potential," Kaeppel says.