Once again investor sentiment comes to the forefront as more and more of the small retail investors pile into stocks. Investor sentiment has usually served as a contrarian indicator to the market.
From the Pragmatic Capitalist
The warning flags continue to pop up all over the place and investors continue to run head first into stocks. None of the recent warning flags are as alarming as today’s huge spike in individual investor sentiment. Small investor bullishness surged to 45.3% versus last week as the market continues to melt higher. This has served as a fairly reliable contrarian indicator in the past as small investors tend to pile into stocks near the end of rallies.
Individual investor sentiment has reached levels that have historically been followed by very poor equity returns. A few of the notable periods when investor sentiment was this high include:
- A 50% reading prior to a 3 month 10% sell-off in Q2 2008
- A 45% reading prior to the 2008 market crash
- A 47% reading prior to the 20% sell-off to the March 2009 lows
- A 49% reading prior to the January 2010 sell-off
[…] With institutional investors stacking up on the bullish side of the trade and now individual investors stacking up on the same side you just have to wonder – who is left to buy stocks? Better yet, who are they going to sell to?
There is a nice graph on the Pragmatic Capitalist page showing the investor sentiment.
Recent Posts:
- Taxpayers to the Rescue of Afghanistan Banking Crisis?
- Economic Data and Earnings Schedule for September 2 2010
- Christina Romer Makes a Final Recommendation Before Leaving To Teach Keynesian Economics
- Homebuilder Hovnanian (HOV) Reports Dismal Quarter
- Auto Sales Data for August 2010
- Stock Market Rewind – September 1, 2010
