Sunday, November 14, 2010

Indivdual Investors Too Bullish?

Historically, individual investor bullishness is a contrarian indicator that signals a stock market peak.

According American Association of Individual Investors survey for the week ending November 10, 2010, the percentage of investors who think the market will rise in the next six months has reached 57.6%. This is the highest percentage of bulls since January 2007. In addition, The Wall Street Journal has reported in 'Dumb Money' Returns to Stocks that $8.4 billion has flowed into equity funds since early September with $2 billion coming from individual investors.

Overall, I don't agree with the $2 billion being significant since $162 billion was taken out of equity funds from January 2009 to August 2010. So it doesn't appear the retail investor has returned to the market yet even though 56.7% are bullish. However, institutional investors may still react the retail investor indicator and I will be prepared for a possible correction in the next few weeks.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

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