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Why Stocks Should Run Higher From Here

By Brett Eversole
Wednesday, August 27, 2014

Right now, a stock market extreme is pointing to higher stock prices from here...
As you'll see in a moment, this "extreme" reading is a very reliable indicator. Like many of my favorite indicators, this one tells us to buy stocks when most people don't want them.
Three weeks ago, it correctly showed that the market's mini-correction was likely over. And today, it says higher prices should continue.
Let me explain...
The National Association of Active Investment Managers (NAAIM) Exposure Index is an investor survey that includes hedge-fund and mutual-fund managers.
These folks actively invest on behalf of their clients, with the goal of beating the market. The NAAIM ranges from 0-100 based on the average exposure these investors have to U.S. stocks.
A reading of 100 is fully invested and a reading of zero is fully out of the U.S. market. As longtime DailyWealth readers would expect, these folks are often wrong when they agree.
The NAAIM Exposure Index plummeted in early August. And it recently began climbing higher. Based on history, that means new highs in stocks should continue from here.
You see, since 2011, the NAAIM has bottomed below a reading of 52 only eight times. Each of these bottoms did a great job of catching the bottom in stocks. Take a look...
stocks and NAAIM index

The gray guidelines show the bottom in the NAAIM Exposure Index. As you can see, it has done a great job catching the mini-corrections in U.S. stocks we've seen over the past four years.
The NAAIM caught the exact bottom in half of these eight occurrences. And most importantly, the largest post-signal loss was just 4.5%. Take a look...
NAAIM Signal
Remaining Downside
Three-Month Return
On average, stocks fell just 1.4% more after the NAAIM bottomed. And three months later, stocks increased around 6%, on average.
Importantly, as of last week, the NAAIM has ticked higher off the bottom we saw earlier this month. History shows that we should expect new highs from here... not continued losses.
The NAAIM has one of the best track records I've seen. And today, the NAAIM has bottomed from the recent mini-correction and bounced higher.
History is clear. When this happens, stocks move higher over the next few months. I expect that to continue from here.
Good investing,
Brett Eversole

Further Reading:

Steve Sjuggerud recently crunched the numbers using an investing legend's "Presidential Election Cycle Indicator." And they show that "the best time to own U.S. stocks is only a few months away..." Get the full story here.
"People think U.S. stocks are expensive," Steve writes. "Yes, they have gone up a lot... But according to our favorite measure of stock market value, stocks are NOT expensive." Learn all the details here.

Market Notes


The U.S. financial sector continues to set new highs. And that's good for America...
Regular DailyWealth readers know we monitor the U.S. financial stock fund (XLF) to gauge the action in the banking sector. With large weightings in JPMorgan, Bank of America, Goldman Sachs, and Citigroup, XLF represents America's "financial backbone." It rises and falls according to America's ability to earn money, save money, service debts, start businesses, and generally just "get along."
After suffering a selloff in 2011, XLF has enjoyed a constant rally. Last week, shares of XLF rose above $23. This represents its highest level in five years. It's still not back to pre-crisis levels, but America's financial backbone continues to get stronger.

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