Don’t Let 'Em Scare You Out Of Your Stocks

  • No question … The market is overextended
  • Well known investor sentiment surveys are flashing red
  • Calls for caution become routine
  • How should you react?
  • Best advice … maintain the long view … the secular bull continues

The market is over extended

There is no question about this. During the month of November the Dow Industrials, S&P 500, NASDAQ and Russell 2000 all made new all-time highs. For the month the S&P, NASDAQ and Russell 2000 were up 12%, 13.2% and 19% respectively. We are textbook overbought.
 

Investor sentiment surveys are flashing red

This week’s survey from Investors Intelligence reported out that approximately 64+% of the market letter writers they surveyed were bullish. According to one source, the last time the percent bullish was this high was in January, 2018 (not a good time to be long stocks in the short-term). The American Association of Individual Investor survey reported out this week the following:

  • Bullish 49.1% up 1.8% from previous week (38% hist. avg.)
  • Bearish 22.7% down 4.8% from previous week (30.5% hist. avg.)
  • Neutral 28.3% up 3.0% from the previous week (31.5% hist. avg.)

Obviously, these contrary sentiment indicators are sending a strong short-term warning. Importantly, it would be normal to expect a little bit of air to be let out of this balloon. The knowledgeable investor will not be alarmed about a sharp, severe correction when it comes.

One final point as it pertains to these well-known sentiment indicators, they are surveys of engaged investors, not the vast majority of people who may or may not have money in the market, people who may have sold in panic in 2008/2009 or, more recently, last spring. There are people who have been underinvested in equities for years for fear that the next market crash was just around the corner … many people who just hate stocks, have totally eschewed them, because of what happened to them in the past.

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Disclaimer: The information presented here represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain ...

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