Market Sentiment: Best Time to Buy Stocks in Decades

Yes, you read it correctly. March 2009 was not the best time to buy stocks. The best time is now, after a run up of 90% in developed (= declining) economies and anywhere from 150% and 300% in emerged economies.

December 2010 seems to be month when all the stars align, and bullishness is reaching historical extremes. Here's what we have discussed so far this December 2010:

1. No New Normal Next Year Seen by Strategists Predicting 11% Gain in S&P 500
2. Hedge Funds Raise Commodity Gain Bets to 4-Year High
3. Put Call Ratio: Everyone’s Betting On The Bull
4. Volatility is back to April 2010 levels
5. Rydex Nasdaq 100 Bull/Bear Ratio At Highest Since Dot Com Collapse
6. US CEOs Most Optimistic since 2006
7. Extreme bullishness in emerging countries, money pouring into stocks at the fastest pace since 2007, biggest rally in 16 years
8. SentimentTrader.com: Equity Hedging Index is at a new record low
9. Trading of U.S. stock options soared to the second-highest level in nearly four decades of history
10. Please also note that the put/call ratio is dangerously approaching the historically low level of April 2010
11. Volatility as measured by the VIX falls back to April 2007 levels
12. Best time to buy stock in decades (yes, there's an ending 's' at decades)
13. Jim O'Neill, Goldman Sachs Asset Mgmt. chairman: "2011, Year of the USA"

CNBC

The woman who predicted the 1987 stock market crash says now is the best time to buy stocks that she has seen in decades.

"My thirteen stock market indicators are at a bullish level—they are at 71 percent. Anything above 65 percent is bullish, 30 percent would be a sell signal or a major bear market—before the crash of '87 the indicators got down to 9 percent," Elaine Garzarelli, president of Garzarelli Capital, told CNBC's "The Strategy Session" on Thursday.

Jim O'Neill is über-bullish, it's really amazing to hear this kind of exuberance, even among the bulls. See for yourself in the embedded video below.

Another low for the VIX:

Dec. 22 (Bloomberg) -- The benchmark index for U.S. stock options fell to a three-year low as the Standard & Poor’s 500 Index moved in its narrowest range since April 2007 and rose for a fifth day to reach a two-year high.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 6.3 percent to 15.45 as of 4:15 p.m. in New York. That’s below the prior 2010 closing low of 15.58 on April 12, and the lowest closing level since July 2007. The index measures the cost of using options as insurance against declines in the S&P 500, which rose 0.3 percent and moved in a 0.35 percentage-point range between today’s intraday high and low, less than half the 0.83 average over the past four weeks.

“We’re having a wind-down in the market as we close down the year and we’re seeing small percentage moves in the market,” said Dan Deming, a VIX options trader at Stutland Equities LLC on the CBOE floor. “People are looking at the timeline for the next couple weeks and, barring any unforeseen thing, the sense is that most people are done playing in the market. You can really feel the lack of activity on the floor.”

Ten-day realized volatility, a gauge of past price swings, for the S&P 500 has fallen to 5.92, near the four-year low of 4.56 that it reached Nov. 2 -- a decline of more than two-thirds from this year’s peak of 37.86 in May.

VIX futures retreated. February’s contracts slumped 0.5 percent to 21.30, while April’s lost 0.4 percent to 23.80. The VIX trades 7.5 points below its three-month future, the widest spread in two months.

The index has tumbled by two-thirds from this year’s peak of 45.79 in May, and is almost a third below this year’s average of 22.68. The volatility gauge has averaged 20.40 over its two- decade history.