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January 11, 2008
A RELIEF RALLY IS ON THE WAY...
Seventy five percent of individual investors believe the stock market will be lower in six months time...
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Individual Investors – A Good Contrarian Signal
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This may sound like bad news to most investors, but actually, an extreme in bearish sentiment is often a great short-term buying opportunity for speculators... you see, extreme pessimism often precedes rallies in the stock market.
The chart of the week compares the S&P 500 index to a sentiment survey released by the American Association of Individual Investors (AAII). As you can see, pessimistic extremes often correspond with good buying opportunities. The average four-week return following these gloomy periods is 2% (much larger than the average four-week return in the market)... And 91% of the time an extreme like was reached, the market rallied.
– Ian Davis
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