They rang the bells twice in Glasgow last week. Not to welcome the navy’s submarine fleet to Faslane. Nor to mark the 10th anniversary of Scotland’s vote for devolution. Not even to celebrate Davie MacDougall’s triumph in the British Pie Awards (trumping Kilmarnock’s finest). Instead, the peals were to celebrate record- breaking trading volumes at Barclays Stockbrokers – and emanated from its trading floor in Bath Street.

Last Thursday, when the FTSE 100 index was up 17 per cent on its March 3 low, the firm witnessed its highest-ever volumes of trading by private investors. Dealing in direct equities, spread bets and contracts for difference was double the level Barclays normally considers to be a good day at the office – hence the “dong” to accompany the closing “ding”. But it’s not just Clydeside campanologists giving a ringing endorsement of the rally.

This week, with the FTSE up 27 per cent from that March low, broker TD Waterhouse announced that it had also broken all records for volumes of trades. Share deals were up 138 per cent, with a ratio of buys to sells of two to one – suggesting that its clients were going like the clappers, even if they don’t ring bells at the broker’s Leeds HQ.

But the issue for the rest of us is not whether bells ring. It’s should we follow these bellwether traders?

Some indicators suggest flocking to the market might not be such a bad idea. John Authers, in his FT interview with Anatomy of the Bear author Russell Napier, points out that lows in the cyclically-adjusted price/earnings (p/e) ratio – price divided by average earnings from the previous 10 years – has proved an accurate measure of bear markets bottoms. And while the cyclically-adjusted p/e of the S&P Composite Index is still some way above the lows of 1932 and 1982, even long-term bear Napier concedes there could now be a 2003-07 style bounce (see www.ft.com/shortview). Robert Ansted, compiler of the IC/Coppock market indicators, points out that seven new positive signals were generated in April alone. And his “Ansted Anticipator” suggests that all the major world indices will post buy signals at the end of this month, for the first time since May 2003 in the case of the FTSE 100 and S&P 500 (see this week’s Investors Chronicle).

However, private investor behaviour is also an indicator – and a contrarian one. New research into retail trends, by the Investment Management Association (IMA), confirms that heavy buying of one asset class has frequently coincided with the resumption of a bear market in that asset – or a bull market in another. For example, in the second half of the 1990s, bond funds took an increasing proportion of private investors’ money – while equities were rallying by 106 per cent. It wasn’t until 1999 that private investors switched their attention to equity funds, with inflows peaking in 2000 at a net £13.5bn – just as the tech boom was collapsing into a three-year decline of 43 per cent. By 2006, property funds had overtaken equity and bond funds, attracting £3.6bn – just months before the IPD index of commercial property began a 41 per cent fall. As the IMA understates it: “Fluctuations in the popularity of equity funds have a variety of causes. A significant one is changes in stock market values and indices with net sales tending to be higher when the indices are high and rising and lower when the indices are low and falling.” In other words, private investors, en masse, tend to buy high and sell low.

So are fund investors in danger of following share dealers, sheep-like, into a new bear phase? Not necessarily. Investment strategists at Invesco and Morgan Stanley have warned that the protracted deleveraging of both corporate and household balance sheets is likely to hold back the price of risk assets for some time. This suggests that, once the market gets over the euphoria of better-than- expected trading updates from Barclays and Lloyds, and not-as-bad-as-expected stress tests on US banks, there will be little impetus to drive equities higher. But fund investors don’t appear to have been drawn in – at least not those buying funds through intermediaries. This week’s survey of 254 independent financial advisers by 1st-The Exchange found that 75 per cent have been warning that recent gains are “no more than a bear market rally” – and another 71 per cent believe rising levels of equity investment are merely “the reallocation of money into equities from other asset classes… not new money from private investors”. This ties in with the IMA’s finding that the proportion of private investors’ money going into non-equity funds recently increased to over 50 per cent. As researcher Philip Bryant put it: “It could be viewed as a sensible move towards a more broad- based allocation of their fund investments between different asset types.”

Diversification into slightly less correlated assets? Now that does seem to ring a bell…

matthew.vincent@ft.com