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The Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass wrote about why the VIX may be pointing toward a market top and why he's buying shares of Avon again.

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> > Bull or Bear? Vote in Our Poll

Fast (but Questionable) Talk on 'Fast Money'
Originally published on Friday, Aug. 24 at 12:41 p.m. EDT.
  • Choose your side of the argument
  • A Piper Jaffray analyst is talking up the market of "Fast Money" now.

    One of his primary drivers for a better S&P 500 (1550 six-month target) is that investors are fearful and that sentiment is poor.

    To be sure, retail investors have shunned equities, but, as I have written, that is not the only measure of sentiment. So, he may be right about the market, but he is wrong about sentiment.

    > > Bull or Bear? Vote in Our Poll

    In fact, sometimes I think some of these talking heads take stuff out of the air with a key emphasis on confirmation bias.

    Below is a compilation of what I have written on the subject of investor sentiment over the last week with recent updates.

    Choose your side of the argument.
    "There are times when the market gives the impression it is fading into nothingness. Volume becomes very low, trading ranges become very small, volatility becomes very low. Also, there is very little change in market levels, and day-to-day fluctuations are minimal. Looking back at history, when that happens, it is almost always a sign of a market high point."
    -- Dick Arms

    The market has risen against a backdrop of very low volume, leading the way for high-frequency trading strategies (tied to price momentum) having an exaggerated impact on stock prices.

    As stock prices have risen, investors have grown increasingly complacent, and many strategists and commentators have said that market participants should be ignoring the rotten volumes.

    Renowned economist Dr. Hyman Minsky wrote that "stability begets instability ... the more stable things appear, the more dangerous the ultimate outcome will be because people start to assume everything will be all right and end up doing stupid things."

    We may be at a mini-Minsky moment right now.

    Specifically, in looking at various sentiment gauges -- namely, the AAII and Investors Intelligence surveys and the VIX -- the growing bullish consensus seems to be turning into a stampede.

    The AAII survey just came out this morning, and bulls have moved to a five-month high. Bulls rose to 42.0% from 36.8% (the highest since late March). Bears fell to 25.9% from 28.1% (lowest since late March). Neutral readings fell to 32.2% from 35.1% Importantly, the spread between bulls and bears rose to +16.1 from +8.8 (highest since late March).
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