Bullishness from retail investors eased a bit at the end of January, following the best start to a year for the Dow Jones Industrial Average since 1994, according to a new sentiment index from TD Ameritrade.
The Investor Movement Index, which tracks the actual behavior of the largest pool of retail investors, showed that they rotated into defensive, lower-risk names as the Dow pushed toward 14,000 and its all-time high of 14,164.
"Overall, they are still net buyers, but net buyers of things that are less volatile," said Steve Quirk, senior vice president of TD Ameritrade's Trader Group. "Which is exactly what we thought our traders should be doing."
TD Ameritrade argues that this index, which it rolled out this year, will show that retail trader is not the "dumb money" that many on Wall Street have been known to call it. Quirk also believes it will be a more realistic measure than the many sentiment surveys out there as people often say one thing in a survey while doing another.
The actual level of the so-called IMX hit a score of 4.71, down from a very bullish 4.94 at the end of December.
Considering the pullback on Monday, the small history of this index has so far proven TD's theory about its traders correct. Their users bought aggressively in December, caught the monster January gain, and then lightened up as the index treads water around 14,000.
(Read More: S&P 500 to Hit 1,600 by Year's End: Analyst)
The monthly index measures trading accounts with $2,000 or more and whose owners have placed a single trade that month. Traders that act more frequently or use margin are "scored" with a higher intensity in the index.
Still, it's much too soon to call this index a leading indicator, which would be in the best interest of brokerage giant TD Ameritrade. But so far in 2013, maybe the so-called dumb money is not that dumb at all.
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