Time For a Dip
Things have been pretty good for investors so far this year. Granted, the market came off of a terrible 2018 and an absolute pummeling in December. We’ve gotten to the point where people are just a little too positive and it’s likely time for a dip.
The AAII, American Association of Individual Investors weekly investors sentiment survey was just released, and it shows a large decrease in pessimism.
Only 23.4% of investors are bearish, which is a 7.4% drop from last week. That means that 76.6% of investors surveyed are either bullish or neutral.
That may sound like good news, but it’s not; it is contrary thinking. A higher level of pessimism is a good thing. The thinking goes that if most people are bearish, there is a lot of money on the sidelines to come in to fuel a rally. Likewise, if there is a low level of pessimism, most folks are invested and subject to fear and will sell, driving the market downward.
To put it bluntly, 23.4% bearishness is a low number. It does go lower, however. Typically, screaming buys and sells occur at 20% on either side and there is no guarantee we ever get there. I’m simply stating that from the looks of things, a dip is likely to occur, therefore do not be surprised or concerned by it.
I’m not looking for a calamity here, just a normal and necessary 3-5% pullback, possibly or a little bit more, but not enough to trade. Although, enough to scare inexperienced investors into thinking they need to panic sell.
This would also time well with the pre-earnings nap period. That is the time on the calendar in between earnings season. As we await the next round of corporate earnings, I have found that stocks tend to drift lower at the very end and beginning of a quarter.
This nap time is caused by the “black-out period” for companies who cannot discuss anything material within 30 days of their earnings release. Without positive corporate news, we are left with headline news. Headlines such as Isis attacks, global calamities and domestic political battles are news that rarely makes investors want to add to their portfolios.
As long as earnings are good when they are announced in mid-April, stocks should continue their uptrend, but it won’t be an easy ride.
Younger investors don’t need to worry as much. However, if you are retired or getting close it’s a different story. Your success relies on you sticking to your Retirement Master Plan, taking advantage of tax strategies that are available to you, investing tactically and having asset protection on your portfolio. This is what we help our clients with every day.
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