Is the most hated bull market in stocks becoming dangerously over-loved?

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” — Sir John Templeton

That simple truth (partially) explains why U.S. stocks have continued relentlessly higher.

The chart below provides a conceptual visual of the sentiment phases described by Templeton.

The 2007 euphoria led to the 2008 crash, just as the 2000 tech euphoria preceded the burst of the tech bubble.

The question now is if there’s enough enthusiasm for another crash?

‘Most hated bull market’

For good reason, the post-2009 bull market has been labeled the “most hated” of all time.

Until recently, investors have viewed stock market gains with pessimism and skepticism, even disgust.

For years I’ve received loads of ridicule for pointing out that stock market haters will be the fuel that drives stocks higher.

In the July 13, 2014, Profit Radar Report, I published this inflammatory message for all the “pros” calling for a crash, wanting to be the next Nouriel Roubini. (Roubini became known as the analyst who called the 2008 financial meltdown):

“Here’s a message for everyone vying to be the next Roubini: A watched pot doesn’t boil and a watched bubble doesn’t burst. The stock market is not yet displaying the classic warning signs of a major top. There will be a correction, but the bull market won’t be over until most bears turn into bulls or the media stops listening to crash prophets.”

My last public sentiment update — “There’s still plenty of fuel left to fire up this stock market” — from June 7, 2017, was met with as much mockery as my 2014 message to wanna-be Roubinis, which confirmed the expectation of further gains.

Fewer crash prophets

The S&P 500

SPX, +0.07%

 has rallied another 130 points since June 7. Crash prophets have become more quiet (probably busy eating crow), but is there enough enthusiasm to be worried about a crash?

The chart below plots the S&P 500 against six sentiment measures (CBOE SKEW Index, CBOE Put/Call Ratio, CBOE VIX, NAAIM survey of money managers, II survey of newsletter writers, AAII survey of retail investors).

The chart allows for a comparison between the 2007 top and today.

Three of six indicators are more extreme today than they were in 2007. Here they are:

• CBOE SKEW: The SKEW was helpful in 2010-2012, but has since lost its mojo. Extreme readings since 2014 did not matter.

• CBOE VIX: The VIX is lower today than prior to the 2007 crash. However, a low VIX is actually bullish for stocks as this revolutionary VIX study from 2014 shows.

• NAAIM study: Active money managers are more bullish today than in 2007. Recent money manager bullishness however, was not a good contrarian indicator.

Optimism doesn’t kill

After evaluating dozens of additional sentiment gauges, I would categorize the current investor sentiment as optimistic.

Optimism doesn’t kill bull markets. Enthusiasm does.

Based on crowd psychology, this bull market has not yet transitioned into the dangerous “enthusiasm” phase, therefore more gains are likely.

This agrees with my favorite liquidity indicator. This indicator correctly foreshadowed the 1987, 2000 and 2007 market tops and has been bullish from 2009 until now — more details here.

Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Radar Report. He has appeared on CNBC and FOX News, and has been published in the Wall Street Journal, Barron’s, Forbes, Investors Business Daily and USA Today.

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