Just When You Thought it was Dangerous 

Just When You Thought it was Dangerous 

This market continues to mystify investors and experts alike. It’s hard for the brain to comprehend how the world around us can be so bad but stocks think it’s so great.

There has always been this great disconnect. The financial markets have an uncanny ability to look past the current mood and outward to 6-12 months from now.

I have been very bullish on this Genesis Bull Market since the Fed carpet bombed the economy with liquidity on April 9th.  However, I was getting a little nervous as the earnings season was ending because of the typical post-earnings nap period.

The post-earnings nap period, as I call it, is when there are no more positive news announcements from companies once they release their earnings, and people start looking at the headlines (and the headlines have never been worse). Typically, markets correct at this time. However, a new critical economic indicator came in with one of its most positive readings in years.

The AAII Sentiment Survey just announced on Wednesday that pessimism is at its highest level in more than seven years. The survey shows that only 23% of those polled are now bullish, down a whopping 7% from just the previous week. That leaves 77% either bearish or neutral, which is an extraordinarily high number. This index is the quintessential contrarian indicator. This blew me away because optimism should be increasing as the recovery rally continues.

It works like this:

When the number of pessimists is high, there is a lot of money on the sidelines waiting to jump back in and fuel the market higher. Conversely, when bullishness is high, most of the money is already invested and sell-offs occur.

This is an extremely positive stock market indicator. Given this, I remain very positive. The market is definitely due for a pullback, but it is steadily climbing that proverbial ‘wall of worry’.

Therefore, we may not get a pullback until it frustrates the largest number of investors possible. Either it will come later after people throw in the towel and panic buy at the fear of missing out, or it will be very brief and shallow, not being enough to allow the people on the sidelines to get in.

Although positive, we remain vigilant. If things change we are prepared to act quickly.

 

“Invest for need, not for greed!”

 Cheers -Keith

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Smart Money Newsletter

Written By: Keith Springer

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