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-- Posted Sunday, 19 September 2010 | | Source: GoldSeek.com
As equity mutual fund outflows mount (Figure 1), stock market bulls argue that such outflows indicate that investor pessimism is high enough to serve as a contrarian indicator to support the buying of stocks. However, other indicators, such as the American Association of Individual Investors (AAII) weekly sentiment survey, indicate that bearish sentiment has not yet reached an extreme and that bullish sentiment is in fact quite high. Figure 1. Monthly Stock Mutual Fund Flows Since 2007 ($Billion)
Sources: ICI, Continental Capital Advisors AAII has been publishing a weekly survey of investor sentiment since 1987 (Figures 2 and 3). In that survey, investors are asked if they are bullish, bearish or neutral on the stock market’s outlook for the next six months. Over the short-run, the indicator tends to mimic the stock market’s recent performance.
Figure 2. Bullish sentiment in the late 1980s and early 1990s compared with today
Sources: American Association of Individual Investors, Continental Capital Advisors While a 20% bullish reading has recently been an extreme reading of pessimism, Figure 2 shows that there were numerous times during the bull market of the 1980s and 1990s, one of the greatest of all time, when bullish sentiment was below 20%. In contrast, since 2000, the stock market is in one of the greatest bear markets of all time, yet bullish sentiment remains above 20%. Figure 3. Bearish Sentiment Is Likely Heading Lower
Sources: American Association of Individual Investors, Continental Capital Advisors The trend lines drawn in Figure 3 show that optimism rose throughout the 1980s and 1990s bull market and has been falling ever since. While investors are more pessimistic today than they were during the peak of the stock market bubble in 2000, sentiment remains significantly higher than during the middle of the bull market of the late 1980s and early 1990s (AAII does not have data going back to the end of the 1970s bear market, but we presume that bullish sentiment would have been significantly below the readings registered in the late 1980s). Although some investors view the reduced participation in the stock market by retail investors as a contrarian reason to buy stocks, it is unlikely that the secular bear market that began in 2000 will end until investor sentiment levels are at least below those registered in the late 1980s. Daniel Aaronson - daaronson@continentalca.com
Lee Markowitz - lmarkowitz@continentalca.com
http://www.continentalca.com
Continental Capital Advisors, LLC
Continental Capital Advisors, LLC was formed to offset the destruction of wealth caused by the global devaluation of currencies by central banks. The name Continental Capital symbolizes the 1775 US Currency, "the Continental", which was backed by nothing and quickly became devalued. Disclaimer: The above is a matter of opinion and is not intended as investment advice. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Certain statements included herein may constitute "forward-looking statements" within the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any action taken as a result of reading this is solely the responsibility of the reader.
-- Posted Sunday, 19 September 2010 | Digg This Article | Source: GoldSeek.com
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