Winter descended on Wall Street this week, as did some selling, although the latter was not as ferocious as the former. Still, like the snow, major stock proxies did fall, breaking their string of weekly gains at eight. For the week, the Dow Jones Industrials shed 2.8%, the S&P 500 fell 2.6% and the Nasdaq Composite lost 3.8%. Given the market had rallied for eight weeks previously, consternation about the setback suggests sentiment is not as upbeat as many contend. Yes, bullish sentiment rose again in the weekly Investors Intelligence poll, but there also were spikes in defensive put buying, one-day Arms Index readings, and the CBOE Market Volatility Index this week. The VIX rose 5% for the week, despite dipping 4.7% to 32.68 on Friday (after trading as high as 35.58 intraday). That may indicate more short-term weakness ahead but also suggests rising fear among traders.
The question, of course, is whether such fears are justified or a sign that investor sentiment, which is often a contrarian indicator, remains overly cautious. Mutual fund investors continue to spurn shares, taking $2.1 billion out of equity funds for the week ended Dec. 5 after putting a modest $4.4 billion into such funds in November (the first month of inflows since May), according to AMG Data Services. But while retail investors are still hesitant, fearing the post-Oct. 9 rally will prove to be another false dawn, some market professionals continue to see opportunities in stocks. "We're still bullish," said Kevin Depew, technical analyst at Dorsey Wright & Associates. "Some short-term indicators -- such as the percent of stocks above their 10-week moving averages -- got extended, so we would not be surprised to see a little more selling. But that would be an opportunity to add to positions as stocks pull back to support vs. an outright sell indicator."