We are continuing to see ongoing pessimism among individual investors about the short-term direction of stock prices [but if you are a contrarian you should bet on a continued rise in stocks despite the continued sense of unease. Let’s take a look at a few charts that tell the story.] Words: 510
So say Charles Rotblut (www.pragcap.com) in edited excerpts from his original article* and Dave Glen in his comments at the end of this post.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
Rotblut goes on to say, in part:
AAII members continue to cast a wary eye toward events in Europe and are concerned about the slowing pace of economic growth here in the United States, the outcome of the U.S. presidential election…and a resolution to the forthcoming expiration of tax cuts and the implementation of spending cuts (the so-called “fiscal cliff”).
In the latest AAII Sentiment Survey for the week ending June 28th:
1. Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 8.5 percentage points to 44.4%.
- This is the 11th time in 12 weeks that bearish sentiment has been above its historical average of 30%.
- The current 8-week streak is the longest since a 14-week stretch from July 21, 2011, through October 20, 2011.
2. Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.2 percentage points to 28.7%.
- This is the 7th time in the past 12 weeks that optimism has been below 30%.
- It is also the 13th consecutive week that bullish sentiment has been below its historical average of 39%.
- It is the longest streak since a 14-week stretch from December 20, 2007, through March 20, 2008.
3. Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.3 percentage points to 27.0%. The historical average is 31%….
* http://pragcap.com/bearish-sentiment-rebounds (To access the above article please copy the URL and paste it into your browser.)
Small investors aren’t the only one’s turning bearish on equities. Apparently, the persistent negativity is spilling over to Wall Street as well, as sell side analysts become more bearish than they’ve been in 15 years.
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According to Merrill Lynch’s Sell Side Consensus Indicator** that measures Wall Street bullishness on stocks:
- just 49.3% of analysts are currently bullish – a level that hasn’t been seen since 1998 suggesting that sell side strategists are now more bearish on equities than they were at any point during the collapse of the Tech Bubble or the recent Financial Crisis.
- the decline marked the 9th time in 11 months that the indicator has fallen.
Says Merrill Lynch: “Given the contrarian nature of this indicator, we are encouraged by Wall Street’s lack of optimism and the fact that strategists are recommending that investors significantly underweight equities vs. a traditional long-term average benchmark weighting of 60-65%.”
Source: Merrill Lynch
**http://pragcap.com/wall-streets-analysts-are-excessively-bearish (To access the above article please copy the URL and paste it into your browser.)[You might also find the following commentary/interpretation of interest regarding the Sell Side Concensus Indicator: http://seekingalpha.com/article/700941-best-bullish-signal-in-15-years-what-is-this-indicator (To access the above article please copy the URL and paste it into your browser.)]
Dave Glen (www.randomglenings.blogspot.ca) reports in edited excerpts from his original article* Amidst the Gloom, Stocks Continue To Rise that on a price-only basis the S&P 500 declined by 3.9% in the second quarter but it is still up 7.7% for the year. Including dividends, investors in the broader market average are up +9.5% for the year.
If you’re a contrarian you should bet on a continued rise in stocks despite the continued sense of unease.
***http://randomglenings.blogspot.ca/2012/07/amidst-gloom-stocks-continue-to-rise.html (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Looking at the charts we…[see] a very strong double-top formation – very similar to what we saw back in 1980….[which suggests] that we are headed all the way back down again, possibly even to the lows that we saw in 2011….This is likely to weigh on equities. Words: 291
Goldman Sachs reports their Global Economic Indicators (GLI) show the world has re-entered a contraction and…is predicting a market crash worse than that of the early 90′s recession and one slightly less than the sell-off at the turn of the millennium. [Below are graphs to support their contentions.] Words: 250
The latest research note from CITI’s Richard Schellbach includes the firm’s “Multi-asset Investment Clock” which tells us we are now at 8 o’clock. What does that mean? Take a look.
As investors become more and more worried about the world economy…it makes sense to us to look into stocks that held up best in periods of market decline. Managing risk is as important as reaching for return. One aspect of managing for risk is the past behavior of particular stocks in negative market periods. Toward that end, we identified four key, recent down periods for the S&P 500, and identified those liquid stocks that were in the top quartile for price return in each of those four periods, and did at least as well as the S&P 500 index in the 2008 crash period. [Take a look!] Words: 620
Marc Faber has stated in an interview* on Bloomberg Television that “I think the market will have difficulties to move up strongly unless we have a massive QE3 (something Faber thinks would “definitely occur” if the S&P 500 dropped another 100 to 150 points. If it bounces back to 1,400, he said, the Fed will probably wait to see how the economy develops)….. If the market makes a new high, it will be with very few stocks pushing up and the majority of stocks having already rolled over….If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Words: 708
Investors are being told that the worsening sovereign debt crisis in Europe will leave the U.S. economy unscathed….[because,] since we don’t make many things to export to Europe, our GDP won’t suffer a significant decline at all…. What [has been] conveniently overlooked, [however’] is the fact that 40% of S&P 500 earnings are derived from foreign economies and the seventeen countries that make up the Eurozone have collapsed into recession. [Let me explain what effect that will have on the performance of the S&P 500 this summer.] Words: 325
At the end of November 2011 the U.S. behavioral indicator for the U.S. stock market, based on insights on investor psychology, touched the crisis threshold for the fifth time (1971,1979, 1986, 2006) since 1970. If the current case follows the four prior cases, we expect a similar positive return from November 2011 to the end of October 2012 as in the four prior periods followed by a decline somewhere between 15% and 30%. [Let me explain.] Words: 317
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. My latest estimates [suggest] that the broad stock market is about 33% above its arithmetic mean and 42% above its geometric mean……Periods of over- and under-valuation can last for many years at a time, however, so the Q Ratio is not a useful indicator for short-term investment timelines [and, as such,] is more appropriate for formulating expectations for long-term market performance. [Let me review the Q ratio with you, along with several graphs, so you can clearly understand what the Q ratio is, how it works and what it is currently conveying.] Words: 800