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Retail investors bailing on bull market

The bear and bull statue outside the Frankfurt Stock Exchange
Martin Leissl | Bloomberg | Getty Images

Small investors are starting to cash in on this bull market, six years after one of the most powerful uptrends ever began, according to 6 million accounts with TD Ameritrade.

A metric compiled by TD, called the Investor Movement Index, or IMX, at the end of February fell to the lowest level in more than two years and to a point that presaged an 8 percent pullback in the stock market before the bull resumed. Trading darlings Amazon.com, Netflix and Twitter were among the most actively sold stocks by TD clients.

The IMX measures what the retail trader is actually doing with their money, not what they say they are doing, setting it apart from other widely followed sentiment measures. This new way of taking the temperature of attitudes toward the market, which TD began testing in 2010, actually shows sentiment can be a leading indicator, not a contrary indicator, which many on Wall Street consider the retail audience to be.

The proprietary calculation measured 4.70 at the end of February. Back in September 2012, the index had a reading of 4.66. That month the S&P 500 topped out and when on to decline more than 8 percent before resuming its bull advance two months later.

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To be sure, retail investors have pulled back before. The IMX hit an all-time high of 5.87 in March 2014 before falling and the bull market continued pretty much unabated until last week.

The S&P 500 is down 2 percent in the last five days on concern the Federal Reserve will begin raising interest rates this summer.

The stocks that the retail investors are selling are onetime high flyers of this bull market. Twitter, Netflix and Amazon are all up more than 20 percent this year. Small investors also took profits in Google and Boeing, both up more than 8 percent this year.

Apple, Facebook , AT&T and oil producers all saw net buying. Two names that have cratered since their IPOs—GoPro and Alibaba Group—were also scooped up.

A measure that values the action of professionals (not their opinions) shows that Wall Street traders are getting bearish as well. The CBOE Put-Call ratio surged on Friday to 1.3 puts traded for every call as markets tanked. As puts are generally hedges or bets on market declines, retail investors aren't the only one bailing on this bull.