If you are a contrarian this should make you bullish
Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market.
Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.
If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.
This was on first page of New York Times on weekend. Average mom and pop investors are giving up on Wall Street. Which makes me think it is bullish. One of the factor to take in to consideration in your bullish or bearish bias. Obviously I do not base my decisions only on such information. I have a Market Timing model which I follow and has done a good job of keeping me out of bearish moves and getting in to bullish move.
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3 comments:
Hi Pradeep,
Josh Brown of "The Reformed Broker" has a good article addressing this. This may be one of those times that it IS different. With high unemployment and changing demographics, how much of the withdrawals are from typical fear and how much is from people just flat out needing the money?
This time is different is what most people believe at extreme sentiment levels and that is why such contrarian signals work.
I would agree if the extreme sentiment level coincided with what looked like a bottom, but these are the kind of fund outflows you see at major bottoms, not when the S&P is 60% above where it was a year and a half ago. When's the last time people pulled this amount of money out over a 10% correction? This is way beyond sentiment... especially when you consider that bonds are yielding nothing should make stocks look more attractive to people.
Contrarianism works the vast majority of the time but there are exceptions to every rule.
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