Sjuggerud: Stocks reach a hated extreme… Big gains ahead

From Dr. Steve Sjuggerud, Editor, True Wealth:

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

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