The Fast and the Furious Sentiment
It’s easy for investors and consumers to get caught up in the dragnet of media hypocrisy, vitriol and fearmongering.
The fast and furious shifts in investor sentiment have been one of the more expensive roadblocks to wealth creation throughout market history.
And understanding the role that fear plays is critical to success over the long haul, while not understanding it can become permanently expensive.
This past week is an excellent example.
Half a dozen trading sessions and a hundred frightening headlines ago little did we know how the China headlines just ahead would cause a semi-reasonable rush to the exits for the Friday trade session, seeing stocks crumble 600 points.
Here was the picture of the AAII sentiment last Thursday:
AAII bullish sentiment had just been shaved by a quarter of its previous evening's value of 45.6%.
Then, of course, Friday came, and it produced a torrent of red ink even as we reminded all readers that this ain't your Daddy's 600 Dow Jones points anymore.
Then the short-term indicators got pretty low as well (but not as low as I personally would have loved to see them – in single digits):
Well the days that followed have basically seen markets rally back from the Friday swoon.
It’s a good lesson in sentiment.
Now, here’s this week's latest AAII sentiment:
Notice two things:
- We did not see a recovery of the 13.9% of bullish participants who disappeared in the previous week, and
- The major averages are all higher - some by a pretty nice clip - than they were even before the loss of the 13.9% from the previous AAII image.
In fact - after 4 days of rallying back to higher levels - and new records - we only saw a tiny return to the bullish side of the board - 1.9% rise to 33.9%.
All of this shows us that there remain more bears than bulls, again, and over 65% of the audience is not bullish while we sit at record highs.
Rest assured that fear of the future will continue to be the most expensive part of your overall wealth / financial plan.