A report put out by my favorite sentiment research firm (Sentimentrader) notes that retail investors are massively invested in stocks. This, despite the retail investors “attitude” towards stocks, which (funny enough) is becoming more bearish. According to the American Association of Individual Investors survey (AAII), retail investors are worried. However – as Sentimentrader notes—actions speak louder than words. Despite their worry, they are buying equities hand over fist.
The problem with a high commitment to stocks/equity ETF’s/mutual funds by retail investors is that they are traditionally wrong at market extremes. In other words, they hold more stocks at the top, and hold less stocks at the bottom. Retail investors are currently – by Sentimentrader sources- holding about 67.6% in equities, 15.5% cash, and the balance in “other” (bonds, commodities, etc). Research shows that when retail investors are holding more than 52% in equities vs other asset classes, the market has tended to correct (not crash) within a 3 month window.
If we tie seasonal trends into this observation, one might make a greater case than normal to “Sell in May and go away”. Today, I’ve posted my “Short termed timing system” chart. You’ll note that it nailed predicting the selloff that we got in early March. Recall that we look for concurrent RSI, Stochastics overbought or oversold hooks along with a move into Bollinger Band extremes. We got a strong sell signal in late February and a reasonable buy signal fairly recently (note that stochastics and BB signalled buy, RSI didn’t quite reach its extreme oversold level before hooking up).
Perhaps as/if/when the market moves up over the coming weeks we will get right back into a sell zone for all three indicators. That might be a good time to exit from some of our higher beta stocks. I for one do expect to begin a cleaning process in a few weeks.
More important than the short termed timing signals – I’ll post a macro signal (Bear-o-meter) reading in early May. Meanwhile-mind your neighbor.
He may be telling you he’s bearish (which should be a positive thing for us contrarians)- but he may also be continuing to hold his stocks, funds and ETF’s despite his words. Do as I say, not as I do – as the saying goes!
Monday’s BNN show with Keith Richards
Here’s the video.
On a personal note…
Some of you might be aware that I compete in bicycle road races fairly seriously (as seriously as A 55 year old guy with a business can be…). I do several races every year, and a few stand out as “key races”. For 3 years I have competed in the Florida Gran Fondo National Championships. This years race took place in the final week of March. I managed to win the Men’s 55-60 division. Podium picture below.
Congrats on the win!
Thanks–it was quite exciting.
I am reposting this from yesterday. Don’t know if you saw it.
I watched you on BNN and saw your recommendation of BX. I wanted to let you and others know that I bought this a few years ago and have subsequently sold it and would not buy it again. The reason is that it is a Limited Partnership in the U.S. and therefore the I.R.S. requires all kinds of extra tax filing. So, in other words, it was a big headache and not worth the trouble.
Thanks for posting this blog and allowing people to comment. Really appreciate your technical work.
Paul I was going to contact you directly–will do it here–I really wanted to thank you for bringing the tax implications to everyone’s attention on BX. We looked into it- and voila! You were right! For non-registered accounts it certainly could be a headache. We sold it yesterday at a small profit having only bought it a couple of weeks ago.
If I may–this is why I encourage people to comment on this site. Its comments like Pauls that will bring to everyone’s attention important facts that I may not bring up, or even be aware of. Its a community–and we should share our knowledge, and our questions. Thats why I do the blogs. I am trying to share my knowledge, and its great if readers will add their own thoughts on a subject if they think they can add value. BTW–I will never censor or delete a comment from being posted unless I deem it abusive or unconstructive. I have no problem with open discussion and viewpoints that may differ from my own.
Thanks again Paul.
How do you play oil? USA is keep drilling and store it, while Saudi reducing production, Oil price trading in rang 48 to 55. Driving season will start soon, feel good time to buy oil companies for short term period like 6 to 8 weeks and see the performance. I like SM in us, CVE.TO is oversold but with reason, CPG.to very volatile stock not for div. for capital gain and minimum div. What do you look when you buy oil and gas company? what is better oil or n.gas?
We are in an energy ETF–this way we play the sector without individual stock risk. We also hold two drillers, as they seem to have good charts comparatively. At this point I like oil over gas. Oil is now vindicating my original post on Feb 15th – click here to read it– where I suggested it could go back up to $60-ish. I am holding for a minimum target of $55 OR the end of the seasonal period which lands around mid-May or thereabouts.
Thanks for your feedback and generous comments. That will encourage me and others, to comment when we think we have some value to add. I agree with your response to Sheldon yesterday, that you should ask your accountant if held in a registered account.
It seems to me, Keith, that the Sentiment Trader report suggests that there is still more greed than there is fear.
I have expressed my congratulations for your Florida trip before but I’ll do so again here. I also checked your Strava file and one ride I was particularly impressed with was your ride of over 100 km. at an average of over 34 km./hour. Wow!
Yes Fred–lots of desire for stocks out there. Good for markets at the moment but not likely to last. We are long the market, as you cant argue too much – but we are looking to reduce exposure soon.
Thanks re the bike–that ride you refer to, BTW, was with a fast group of sponsored pros from PQ who were visiting the area too. We actually went 37 km/hr average speed for 80km of the 100 km. The other 20 km were just me riding easy out and easy back to my hotel from the meeting spot, which reduced the average speed! Good training!
re 37 km/hr over 80 km, how many hills? Flat or hilly, still awesome.
Gently rolling Fred. There are hilly areas in Clermont (where I ride) but this ride didn’t have that topography. If you look on the Strava file you will see that it only had 454m of climbing over the entire 114km ride.