Is the shoeshine boy indicator flashing red?
Joseph P Kennedy is quoted as saying that he knew in 1929 that Wall Street was overly optimistic and a crash was on its way when he started to get stock tips from his shoeshine boy. Is the current rush of mom-and-pop investors back into stocks a similar signal of a correction to come?
Some analysts are pointing with concern to data, such as the Yale Crash Confidence Index for individual investors. The index, which measures the likelihood of a stock market crash in the next six months, is an example of a "contrarian indicator" – where increased optimism or activity in one area is viewed as the sign of a forthcoming downturn.
Since June, it has shown more than 30 percent of investors feel confident the stock market won't crash within six months, after mostly languishing below that level since 2007.
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The analysts are concerned because the index hovered around these levels before the dotcom bust in 2000 and the global financial crisis in 2007-08. But it isn't always clear this portends disaster: sentiment was even better, touching 49 percent, in 2003 -- arguably an excellent moment to be buying stocks.
Meanwhile, Citigroup's Panic/Euphoria model climbed to its highest level in nearly five years, to near euphoria territory, the bank said in a November 1 report.
"Predicting crashes is always a very difficult thing to do," noted Daniel Needham, chief investment officer at Morningstar.
"It's difficult to read in whether the individual investor is a contrarian indicator," he said. "The individual investors are jumping in is as much a reflection of stocks going up," he added.
"When markets are up, people become optimistic and put more money into markets. It's normal investor behavior," Needham said. "To say jumping into the market heralds a crash is pretty extreme."
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Another commonly cited contrarian indicator is mutual fund cash balances, with higher balances seen as bullish as managers will likely soon put the cash on the sidelines to work in the market.
But Needham noted that while cash balances are currently "reasonably high," it's likely because investors are underweight bonds and holding more equities, which could be a bearish indicator.
"Investor positioning is pretty aggressive," he said, noting many investors are relying on low interest rates to continue making risky bets. "I wouldn't be surprised to see asset prices fall," he said.
It's a pattern repeated in the American Association of Individual Investors' sentiment survey, which shows 45.5 percent are bullish on the stock market for the week ended November 6, compared with a long-term average of 39 percent.
Only 21.8 percent were bearish for that week, compared with a long-term average of 30.5 percent. That's less bearish and more bullish than much of 2007. In March of 2000, just before the dot-com bust, investors' bullishness hit a high of 65.7 percent.
But investors were also quite bullish in 2003, with 70 percent saying so in June of that year.
"The mere presence of mom-and-pop investors itself does not portend a crash," said Misha Graboi, an associate director at Paamco, a fund-of-hedge-funds with $8 billion under management.
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But he noted, "increased activity by retail generally follows long periods of market optimism, which can sometimes ignore stretched valuations or structural problems in the economy."
He said the real question was whether a large systemic problem was lurking on the horizon, as previous crashes followed specific events such as the U.S. housing bubble and unsustainable growth in tech stocks.
"Currently, we don't see anything immediately on the horizon of a similar magnitude to what preceded the last two major corrections, but there are always things to keep investors up at night" he said, citing uncertainty over China's growth and the timing of any move by the Federal Reserve to taper its asset purchases.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1