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Stocks Reach a Hated Extreme... Big Gains AheadBy
Thursday, May 5, 2016
This might be the most hated seven-year boom in market history...
You would think that the recent 13% gain in stocks would cause some excitement... that investors would start to get interested in buying stocks again after a rally.
Nope.
Individual investors are still extremely worried. And that typically means higher stock prices are likely from here.
Let me briefly explain both of these things...
One simple way to find out if investors are worried is to ask them...
The American Association of Individual Investors ("AAII") asks investors how bullish or bearish they are every week.
Specifically, the AAII asks people how bullish or bearish they are on the market's outlook over the next six months.
The recent results might surprise you...
Investors REALLY hated stocks back in January. Just 17.9% of those surveyed expected higher stock prices going forward.
To give you an idea of how extreme that is, it's the most scared investors have been in more than a decade...
Think about that. Investors were more pessimistic in January 2016 than they were at any time during the global financial crisis of 2008-2009.
Sometimes, one week's survey result can be an "outlier." But even when we look at a five-week average of survey results, we see the same thing: Investors were more scared in January 2016 than they were at the market bottom in March 2009.
Take a look:
 Today, in May 2016, investors are still pessimistic. The latest reading on this survey is just 27 (meaning just 27% of investors are bullish). So... are individual investors euphoric today? Are they scrambling to buy all the stocks they can?
Absolutely not!
Stocks are up, but that hasn't changed the prevailing bias... which is FEAR.
Markets bottom at times of maximum FEAR. And markets peak at times of maximum GREED.
Judging from these surveys of individual investors, we are closer to maximum fear than maximum greed.
The conclusion is simple: We aren't close to maximum greed yet – and therefore, we aren't close to a peak in stock prices.
Trade accordingly...
Good investing,
Steve
Further Reading:
On Monday, Steve shared another reason stocks should continue to march higher. Get the full story here: We Aren't Even Close to a Top in Stock Prices.
Steve discussed the "SJUG Number" last month – what he calls the world's most important number. And it just hit a record low. Learn what that means for stocks (and other assets) here.
Market NotesONE OF THE WORLD'S MOST IMPORTANT TRENDS JUST BROKE DOWN The U.S. Dollar Index just reached a new 52-week low... and that's good news for gold.
In a recent Growth Stock Wire essay, our colleague Ben Morris explained why all gold and gold-stock investors should keep a close eye on the U.S. dollar. In short, when the value of the U.S. dollar falls (relative to other major currencies), it takes more dollars to buy gold. The casual observer will only notice the price is going up. But in reality, it's the value of dollars going down.
The easiest way to measure the value of the dollar is through the U.S. Dollar Index. This index tracks the value of the dollar versus a handful of major currencies, including the Japanese yen and the euro.
As you can see in the chart below, the dollar index soared nearly 25% in 2014. But after moving sideways for most of 2015, the index just broke down to its lowest level in more than a year. The dollar has started a new downtrend... and should continue to weaken. The lower the dollar index goes from here, the higher gold prices should rise.
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