The Street's Sentimental Journey

Is there too much bullishness or too much nervousness? Dave Kansas throws up his hands.
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For all the numbers, ratios and figures on Wall Street, the concept of sentiment still has a lot of influence. When people are too bullish, that's a bad sign. When people are too bearish, that's a good sign.

Which brings us to today's confounding situation. Judging from the market action in the past several days, with the

Dow

racing to record highs, one could argue that there's no shortage of bullish fervor these days. Certainly the beneficiaries of bullish sentiment appear to be changing, as

Justin Lahart

points out in

The Coming Week. But the fact is that the folks out there are still buyin' 'em.

Also on the sentiment side, the general notion that too many people are involved in the stock market is seen as frightening. Taxi drivers, homemakers, college students and just about everyone else seems to have a finger in the stock market. This creates concern because one of the apocryphal tales of the Japanese bubble market was the story of laundry workers checking their stock charts for hot tips in the waning days of the

Nikkei

boom.

But at the same time I hear about all too much bullishness and too many people involved, I hear a lot of tales of people taking their money out of the market, people husbanding resources in wait of a pullback in stock prices. Money market funds are flush and it seems that there's no shortage of cash sloshing around

outside

the stock market. For instance, some analysts are arguing that the sustained boom in housing prices is being driven, in part, by a growing desire among people to find investments outside of the flying stock market.

So what gives? Is there too much bullishness or too much nervousness? Even though some market soothsayers cry out warnings of overvaluation, I believe a substantial number of people hunting for a chance to get into this stock market. Even with tons of cash flowing into mutual funds, more seems to arrive every week. Yesteryear's firehose of liquidity has turned into a torrent. Like the U.S. economy, this stock market will need to take some very decisive hits before it gets derailed. Even extended military action in the Balkans is not doing much to hurt this stock market.

The recent move into cyclicals is giving some investors pause, primarily because the technology sector is taking some damage from the rotational move. Yes, technology stocks are richly valued, but the concept of expansion -- something that helps the cyclicals -- ought to be giving a boost to the technology stocks, too. Given that Hong Kong, Japan and other moribund Asian economies appear to be showing sparks of life, given that the European central bankers are easing monetary policy, given that all of these regions could use more technology capital spending, it is difficult to figure why the techs are not going to benefit from this rotation into cyclicals.

It will be important to watch the tech stocks in the days ahead. How they respond to the recent rotation will tell whether or not the new move into cyclicals will ultimately help drive another leg higher in this bull market. If the techs fail to respond, it's hard to figure how the current rotation into cyclicals can continue with any kind of strength.

The jump in Hong Kong stocks represents an interesting development for investors focused on Asia. For the past several months worry has increased that the Chinese economy will falter. But given that Hong Kong is so closely tied to the Chinese economy, the China doom scenario looks less likely. More likely, investors are betting on the possibility that

Clinton

, eager for calm on his Pacific front (as opposed to what's happening in across the Atlantic) may push ahead with his tentative China/

World Trade Organization

strategy.

Fact is, the Clinton Administration can't afford any global distractions while focusing on what's going on in Kosovo. In addition, one could argue that in order to quiet

Boris Yeltsin's

recent bluster, the U.S. will do the same in fighting for goodies for Moscow.

So, strangely, what's happening in Kosovo might be having an impact on investment decisions from Hong Kong to Eastern Europe. As the crisis persists in Kosovo, keep an eye on these markets.

Another side benefit of the Balkan crisis? We get to hear less from the

Economist

about how the U.S. is having a bubble problem in its stock market.