Retail investors fully embraced this bull market in February, looking past any threat from the sequester crisis in Washington, D.C., and buying stocks more aggressively than they have in three years, according to a sentiment index from TD Ameritrade.
(Read More: CNBC Explains Sequester)
They looked for the stocks that would lead the next leg of this bull market, buying into underperforming names such as Apple, Facebook and Intel, according to the survey that tracks the behavior of the largest pool of retail investors.
"There is an underlying bid by retail in this market," said Steve Quirk, senior vice president of TD Ameritrade's trader group. "There was a broader rotation out of stocks hitting multi-year highs and into stocks that have underperformed as of late."
The so-called IMX Index posted a 9 percent increase to a score of 5, its highest level since June 2011. TD formerly introduced the index to the public this year, but has been back-testing it for three years.
The Dow Jones Industrial Average struggled around the 14,000 level during February, making several failed attempts at a new record high. The struggles continued Monday as investors weighed the effects of the automatic deficit cuts triggered by the so-called sequester.
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By TD's logic, this strong retail buying should signal more good times to come. They argue that the way they constructed the measure makes it more of a predictive mechanism. Many retail sentiment measures tend to have a contrarian reputation on the premise that by the time the regular investor has caught on to a bullish trend, it's too late and the real pros have started selling.
But back when the IMX Index was last above 5 in June 2011, the S&P 500 was just starting to turn and embark on a second-half rally, proving TD's theory correct (at least in that one case).
Apple, Intel and Facebook all had rough a February, finishing in the red while the rest of the market increased. Yet, all of those names are popular trading stocks with strong brand names and investors bought them on hopes they will catch up to the rest of the market.
The monthly index measures 6 million funded accounts. Traders that act more frequently or use margin are scored with a higher intensity in the index.