Huge Bearish Sentiment to
Propel Stock Market Rally
Thursday, September 15th, 2011
By Michael Lombardi, MBA for Profit Confidential
Loyal and long-term readers know I’m a contrarian investor at heart. When investors are selling in droves, I want to buy. Similarly, when investors are buying stocks as a herd, I’m selling.
And this brings me to today’s very important issue.
I follow several services that gauge the sentiment of consumers, investors, and stock advisors. And from 30 years of investing experience, I can tell you that the stock market usually does the opposite of what the consensus believes it will do.
As an example, in March of 2009, at the depth of market pessimism, when investors and stock market advisors were at their most negative consensus in years, the stock market took off. In October of 2007, when investors and advisors were at an extreme bullish level, stocks started to crash.
My news today is that, over the past couple of weeks, the number of stock advisors who have turned bearish on the stock market has reached a level not seen since the fall of 2010 (Source: Investors Intelligence).
Stock advisors have left the bullish camp in droves and have jumped onto the bearish bandwagon. Wherever I look, I see blatant negativity. The bears are aggressively outnumbering the bulls, and when I see this kind of action…the stock market usually rallies. Investors pulled big money out of the stock market in August. A recent CNN-sponsored poll says that almost half of all Americans expect a depression within the next 12 months. Negativity is at extreme levels.
What I’m saying today is that there is sufficient bearishness among investors and stock advisors for the stock market to give us a meaningful rally from here. If I were to short the stock market right now, I’d be covering my shorts.
Michael’s Personal Notes:
“Is silver still a good buy?” This is a question I regularly hear from precious metals investors these days.
The simple answer is that I believe silver prices have gotten a little ahead of themselves. Yes, I like the long-term prospects for most precious metals, but silver prices have already enjoyed a spectacular run-up and are due for a correction.
This morning, it takes 45 ounces of silver to buy one ounce of gold bullion—the high-end of the historic price relationship between the metals. At the end of 2008, it took 80 ounces of silver to buy one ounce of gold—silver prices have come a long way.
If we look over the past 12-month period, gold bullion prices have risen 42%, while silver prices have soared more than double that—silver has risen in price 96% in the past 12-month period.
I believe that, after spectacular run-ups, both gold and silver prices are headed for a correction. I won’t sell my gold—as prices move lower, I will use that opportunity to buy more gold investments. But to make silver a screaming buy for me once again, either the price of the metal has to decline or the price of gold has to rise to close the gold/silver price ratio gap.
Where the Market Stands: Where it’s Headed:
Stocks are closing the gap on their loss for 2011. After yesterday’s 140-point rally by the Dow Jones Industrial Average, stocks are down 2.7% for 2011.
The stock market continues to climb the proverbial “wall of worry.” I believe that the market will move higher from here, as the bear market rally that started back in March of 2009 continues its advance.
What He Said:
“What group of stocks are next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.
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Tags: bear market, bearish, dow jones, gold, gold investments, gold market watch, Is silver still a good buy, precious metals, silver prices, stock advisors, stock market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
