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.