Friday, June 12, 2015

Stuck in Neutral?

According to the latest survey by the American Association of Individual Investors, bullish sentiment among retail investors has fallen this week to a two-year low, and pessimism rose to a nine-month high. The optimism reading has tumbled by more than 30 percent from where it stood at the end of last year.

But this might be good news. The sentiment survey conducted by AAII is often viewed as a contrarian indicator. When optimism is down among retail investors, history shows equities have a tendency to rise in value. In other words, the fact that all these individual investors are negative on the market is more likely a good sign than a bad one.

What's really a good sign for the market is neurtal sentiment, and we've got a lot of that right now. Those investors saying they are impartial on stocks’ direction was 47.4 percent this week, the record 10th consecutive week that neutral bias has been above 45 percent. An unusually high level of neutral attitude ypically leads to above-average performance among stocks six to 12 months later.

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