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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.
Traders are chattering about some troubling signs – most notably a breakdown in small caps – as reasons why the Dow Jones Industrial Average may not make it to 14,000 anytime soon.
The Dow began Wednesday just 46 points from topping the milestone, on a clear course this week to trade above a level it hasn't been near since 2007. But something funny happened along the way.
The valuation figures on Apple look so cheap that it boggles the minds of many traders, but that doesn't mean the stock is necessarily a buy right now, they said.
Apple trades at a forward price-earnings ratio (minus cash) of an astounding seven, according to Goldman Sachs. And revenue will increase a whopping 17 percent this year, estimates the firm. What's more, the stock sports a dividend yield of nearly three percent.
"It is dirt cheap right now," said Michael Murphy of Rosecliff Capital. "But I had to get out because it was trading on headlines and 'The Street' is way too emotional about it."
Using some unusual analysis of global wealth demographics not typically seen in a stock report, Pacific Crest Securities makes a case against owning Apple by theorizing that just about everyone in the world who could pay for an iPhone already owns one.
"Street estimates for iPhone units in 2013 and 2014 would require the iPhone user base to grow to well over 300 million people exiting 2013 and to approximately 375 million exiting 2014," writes Andy Hargreaves, who downgraded the stock to "sector perform." "The 2014 user base would include 43 percent of the total number of people in the world who make over $15,000 per year, which is an unrealistic expectation in our view."
(Read More: Apple's iPhone 5S Launching in June, July: Analyst)
Investors suddenly seem to like stocks again.
After watching the market post double-digit returns last year—and with the Fiscal Cliff resolved for now—Americans are pouring billions of dollars into stocks.
Just over $22 billion flowed into long-term equity mutual funds and exchange-traded funds in the week ended Jan. 9, according to Bank of America Merrill Lynch. That was the second-highest amount on record after the $22.8 billion that went into all equity funds in September 2007.
"I have to take this as bullish," said Dennis Gartman, veteran author of the daily Gartman Letter. "Perhaps one gets a bit antsy when the public's in, but inflows are always better than net outflows and the public is still sitting on a mountain of cash or debt securities."
Some, however, believe it's too early to tell if this is really a trend.
"I'm a little skeptical," Art Cashin of UBS told CNBC on Friday. "I want to see if they continue." (Watch video above)
On Wall Street, the retail investor is often seen as the dumb money. As the thinking goes, by the time Main Street has caught onto a bullish or bearish trend, it's time for the so-called smart money – the professionals – to do the opposite.
Those days may be over, thanks to an index by TD Ameritrade being unveiled Tuesday.
Dan Loeb's Third Point was the clear hedge fund standout in a horrible year for the industry as almost nine out of 10 managers underperformed the S&P 500. Omega Advisors' Leon Cooperman also scored big.
Loeb — once better known for his acerbic letters to CEOs — used an activist position in Yahoo and the contrarian buying of Greek bonds to drive the firm's flagship fund to a 21 percent gain in 2012. The firm's more-leveraged Ultra fund posted an even bigger 34 percent return.
"Among his many talents, the one that I appreciate in Dan is his adaptability and ability to learn and evolve," said SkyBridge Capital's Anthony Scaramucci, who holds one of the largest gathering of hedge fund investors every year in Las Vegas. (Loeb is a speaker.) "This is the main reason in my mind why he has become one of the world's greatest investors."
Goldman Sachs strategists have issued a big warning to clients hiding out in bond funds: You're about to lose your shirt.
The reason: interest rates began rising this week, and if they return to the historical average yield of 3 percent, prices for long-term bonds will plummet. (By their very nature, fixed income prices must fall if rates rise.)
"A reversion of risk premiums to historical averages of 6% nominal rates (3% real rates and 3% inflation) would suggest estimated losses in portfolios with bond durations of 5 years of 25% or more," equity strategist Robert D. Boroujerdi said in a note.
The yield on the 10-year Treasury hit almost 2 percent this week–an 8-month high–after minutes from the Federal Reserve's last meeting showed several members believe the central bank's quantitative easing should end this year. (Read More: End of Stimulus? What's Behind the Fed's Surprise Statement)
From its humble beginnings in a speech by Ben Bernanke to its surge to the top of the American lexicon, the "fiscal cliff" was banished to the annals of history Wednesday to the delight of many of the populace bedeviled by the term.
But it wasn't just passage by Congress of a budget act Tuesday that put an end to our national nightmare, it was also the term taking the No. 1 slot in Lake Superior State University's annual list of banished words.
"Fiscal cliff" garnered the most nominations for this year's "List of Words to be Banished from the Queen's English for Misuse," which has been put out every New Year's Eve since 1975 by Michigan's smallest public university. Second on the list was the phrase "kick the can down the road."