Sean,
- While scared is very true it is when they get scared that makes it dumb money. They get most scared at the bottom and sell stocks to buy bonds and get the most excited at the tops and do the opposite.

Without the majority being wrong at the highs and lows you would have smaller bubbles and crashes.

The basic premise was that mutual fund money was the most "retail" and uninformed of invested money. That premise has been reduced with changes over the last decade or two.

One change is the 401(k) where some control, within the options offered, is in the hands of the investor. But that money tends to be invested too much in money market and bonds to the long term detriment of the owner of the retirement fund. But it is no longer invested by institutions for defined benefit plans.

And that money goes in week after week, rain or shine. While adding a bit of stability it fails as an indicator.

What I am looking for is strictly a sentiment indication for the retail investor because I still believe the majority will be wrong at the highs and lows.

And while you are right that people are very scared due to recent events that also means they are holding money which still can come in to the market and keep driving it higher.

Doug,
     SEC vs. GS has changed the tempo just a bit. Today every stock I own lost ground, excepting BMY. I'll begin nibbling at AA again if it falls below $13 and COP if it approaches $50.
Seán

     Now on Saturday, just after sunset, futures of indexes around the world are down to downer. Our S&P 500 has fallen 18.2 points. Only Nikkei 225 shows gains. Trading volumes on Friday were above the average and the prices of most shares headed lower. On Monday some real bargains may develop.
Seán

Don't lose the big picture. For all the noise last week and the tumble on Friday we were still up for the week.

Yes the futures globally are currently down remember when we fell on Friday those markets were closed. They tend to follow rather than lead. Much of Europe is still open when we will open on Monday. The usual reaction would be for them to fall early overnight then take their cues from our market once it opens. Often they recover at their close if the US doesn't keep heading down.

While the futures you are looking at show down 18 points that number is only off the closing number by two points. Almost flat.

One problem with that futures number is that there is no single futures contract but instead that number is a weighted and calculated creation from tens of thousands options contracts at all different prices.

We also had a small options expiration on Friday. I have been checking those futures and they hadn't bought in to the most recent rally and were priced well under the actual level for the last few weeks. By the end of last week, maybe because of the expirations they soared higher and then got burnt. A short squeeze. So the tumble back to flat may be more normal.

My expectation is a recovery bounce or flat on Monday. Going forward the market should move on earnings which for the last quarter should be decent. How they compare to expectations is another matter. But actual profits is what matters longer term.

Two caveats.

One, you are right many retail investors still are gun shy and I expect we could have some over reaction to any bad news or even the market correcting. So corrections could be larger and quicker than during more normal markets.

Second, I said at the start of the year my S&P 500 target was 1350 for the end of the year and I wouldn't worry much about a correction unless we pushed up too fast too soon. And that my antenna wouldn't go up unless we went over 1200 in short order. We are almost there.

Not sure if 4 months in is "too early" if the summer is flat but it is pushing it. And Geithner said the economy is doing better than expected so maybe 1350 is low for the year. I allowed for that possibility but it doesn't change much except for the likelyhood of a correction in the short term.

Myself though, I don't expect to able to short term time the market well and I need greater extremes to act with confidence. So for now I am still riding the trend, but watching out for levels to get more extreme.

Sean,

Sorry didn't get much of a buying opportunity. AA dipped a little though.

Doug,
You called yesterday quite well! Now, my pharmaceuticals are struggling. If PFE goes lower I'll buy some more of it, although its recent performance has been less than impressive.
Seán

     What a session! Agony and fear, served with Bernanke sauce, turned out to be quite palatable. My portfolio bled a little on the down days but, with Friday's rally, gained nicely for the week. The dearth of bargains tells me a bull market is underway and that calls for a change in strategy. I'll still be buying when a price seems low but now will look for good stocks that are reasonable in price and can be expected to outperform the herd. INTC looks to be a candidate: With low debt and good financials overall, it should benefit exceedingly when companies recovering from the recession begin replacing their obsolete electronics.
Seán

quote:

The dearth of bargains tells me a bull market is underway and that calls for a change in strategy. I'll still be buying when a price seems low but now will look for good stocks that are reasonable in price and can be expected to outperform the herd.

Kudos. I thought maybe you were locked in to your approach seeking only the lowest prices that may not return.

I was going to reference a couple of comments I heard recently along the same lines.

Mainly, that the talking heads were saying it appears people were starting to buy the dips and that some money has been coming off the sidelines.

Two big shifts happening in the fund flows, the retail money that sound confirming of that.

While last quarter funds went in to bonds over stocks at a rate of 3 to 1 it has shifted recently to 3 to 2. Still more money going in to bonds than stocks but getting closer to even and a definite change in some sentiment from the previous.

The other shift is that over the last year much more money had been going in to overseas funds and less domestic. That appears to entirely reversed with the lion's share of the funds going in to stocks being invested in the US. That change has been accelerating for a while.

http://www.amgdata.com/#create...php/signup_trial.php

If this shift continues I think it sets up for a continuing Bull run this fall with improving profits partially justifying stock prices.

I also think that will result in the market getting further ahead of itself and needing a correction but from a higher level.

We may stay rational for a while because I think the dumb money, despite the current shift, won't flip to selling bonds until rates start rising and those bonds they are still buying start to take losses. Interest rate increases may be a ways down the road yet.

For the moment I hope to ride the trend up thinking I don't have to worry until valuations get rather scary.

The term "dumb money" is not mine. A better term might be "slow money" or "late money".

They come too late to the party long after the better booze is gone and suffer the bigger hangover from drinking the cheap booze in to the night when the early arrivals have already left while still sober (with their profits).

At this moment I think it is still PARTY ON!

But I'm always watching out for the cops to come.

Doug,
     Hold that applause. I bid for and bought INTC at $24.04 then watched it close at $23.82. My only consolation is that I captured its dividend, payable on May 5. I hope it will go down some more because I will be dollar-averaging my purchases of this issue.
Seán

It looks like we are going to get a bit of a test of the "Investors are buying the Dips." theory.

Here is a video that might fit in to some of your earlier expressed philosophy:

How to invest for the end of the world

hint: buy soup

Considering the DOW is down over 200 points at the moment this might also give a touch of a read on how scared and how fast the previously burnt retail investor gets scared.

In other words, if the stocks are in weak hands or not.

I tend to think not for the most part simply because they keep saying there is still a lot of money on the sidelines and out of the market.

As opposed to the money having come in that might be pulled out quickly in a downturn.

     My portfolio is made up entirely of high-grade issues and every one of them went down today. The average loss was about 2%. (I have not calculated it exactly.) Not only did they lose, most of them traded above the average volume.
     Indexes kept moving lower throughout the day and showed no sign of recovering as the session ended, as they have been doing lately. Note too that gold and long term Treasuries went up in price which reduced the money available for stocks. At this hour (~6 PM, MST) the DJIA and S&P 500 futures are slightly negative. I expect tomorrow to be another downer.
     All-in-all this looks to be a buying opportunity developing. I stayed out today because no stock I'm watching fell into my buying range. I hope some will do so tomorrow—PFE and INTC look likely.
Seán

quote:

I expect tomorrow to be another downer.—Seán

Doug,
     I quote that as a typical example of my bleary foresight. Actually, the tendency was down until the Fed displayed its hand. I added a few more shares of INTC at $23.14. It closed at $23.26: Up, but not enough to make up for my boo-boo yesterday. With a little luck it will resume its fall tomorrow; I'm much attracted to this stock.
Seán

I have watched the action this week with much interest because of the way it progressed.

That being mainly in regards to market actions, sentiment, and psychology, and not fundamentals.

One part that intrigued me was after Tuesday's drop that went in to the close I was checking stocks to see how broad it was and found every stock down, red everywhere without coming across any exception.

But I noticed the after hours immediately went green significantly at the top of the page. Same with the all red it was across the board, most every stock except a few even large caps that were flat or hadn't traded.

The gain wasn't as large as the loss but it seemed obvious the buy the dip people stepped in, in mass, as soon as the market closed. Since it went contrary to the day it may have the first time I noticed what I would describe as an identifiable group as opposed to merely a shift in sentiment during normal trading which is not so identifiable to a group.

Almost to confirm this, as the after hours wore on the gains diminished and some stocks went further negative. Which I attributed to those taking losses during the day getting out when they saw an uptick.

That also set up the next day where it tumbled early but then we started to recover.

Today's bounce I can't say I expected. We have nearly recovered all the loss. I felt a correction here was healthy. Coming back so fast, not so much.

One thing I do is look for extremes, outliers, and things that lie outside of the averages or historical norms. There are a couple right now.

One is that we have had a seven week stretch of the Dow being up. Longest stretch since 2004 already and we could go eight weeks if tomorrow is up. That is pushing against the norm.

The other is the VIX, volitility index. It hit record highs last year, justifiably with the crash. But now it is near lows, saying stocks are very stable and safe. That doesn't exactly jive with the economic situation or market levels imo. But one problem with that index is that as stocks go up the level goes down. Part of the index is figured on the trend. That part could be a self full filling prediction. But the other part is based on options. That part might be that the shorts are tired of getting burnt as the market continues up for over a year.

So with the latter in mind, and my philosophy that the majority tends to be most wrong when the market turns I doubt the small retrenchment we have just seen is the correction that is expected.

But long term fundamentals keep improving. It leaves a quandry to react to the short term or focus on the much longer term for gains by the end of the year or next year and beyond.

quote:

But long term fundamentals keep improving. It leaves a quandry to react to the short term or focus on the much longer term for gains by the end of the year or next year and beyond.—BullDoug

Doug,
     I think the astute and lucky can still make money trading but they will work hard for it. Long term investment, as you define it, is not only a way to profit; it also protects an investor's buying power in the event of inflation. Beyond that, good stocks pay dividends, usable for living money and additional investments.
     Of course a long-term investor must be prepared to cut and run before the market crashes, as it is sure to do when everything looks rosy and the gurus are calling for full steam ahead.
Seán

Doug,
     I bought more shares of INTC at $23.00 today, but could have had a better price by waiting. I feel somewhat overloaded with it now, but will buy more if the price hits $22 or less. I have been looking for a reason why its price is falling and I may have found it: There is a rumor that AAPL may start manufacturing its own chips instead of using Intel's! To me that seems more like a signal to sell off Apple shares.
Seán

quote:

a quandry

What to do? What to do?

I said earlier that 1,200 was the start of where I would begin getting nervous. They keep toying with it and backing off. The problem with a single number is that a month or two it was more worrisome, not so much a couple months from now. And I don't think we will be particularly overvalued until we are running above it.

I found somebody else talking about my retail mutual fund theory.

quote:

Extraordinary bullishness
Commentary: Nasdaq timers now most bullish in nearly a decade

By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- These are times that try contrarians' souls.

Maddeningly, it's unclear whether the mood out there is too positive (which would be bearish), or too negative (which would be bullish).

On the one hand, individual investors remain profoundly skeptical of the stock market. Domestic equity mutual funds, for example, over the last year have actually suffered a net outflow. That's extraordinary, since the usual pattern is for investors to pour huge amounts of new money into the stock market in the wake of rallies as strong as the one we've experienced over the last year.

Furthermore, according to the latest data for April, there is no sign that this trend is about to change. (Read my Apr. 27 column).

On the other hand, investment advisers are bullish right now -- more bullish, in fact, at least by some measures, than they have been in a decade.

Marketwatch

quote:

The Wall Street-Main Street disconnect
Commentary: Fund investors continue to shun domestic equities

By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- The gulf remains as wide as ever.

I'm referring to the stark difference in mood on Wall Street and Main Street. The mood of the former is quite upbeat, if not giddy -- fueled by the incredible bull market and helped along in no small part by last year's gargantuan bonuses.

The mood on Main Street, in contrast, couldn't be more different. Unemployment has barely receded, despite persistent reports that the economy is recovering. Far from seducing investors back into equities, as rallies often do, the recent bull market has led individuals to be angry and cynical about a system they're now convinced is rigged against them.

This is well illustrated by the choices mutual fund investors are making for where they should allocate their money. Over the last 12 months, according to data provided by Vincent Deluard, Global Equity Strategist at TrimTabs, the vast majority of new money has gone into bond funds, and the second most popular destination was international stock funds.

Almost none has gone into domestic equities.

Marketwatch- the linked previous article

In the earlier article he says :

"That is an ominous precedent, of course, since the 1974-82 period was a frustrating one for stock investors, in which neither the 1974 low, nor the high the market reached before that bear market began, was broken. "

That fits well with your statement that it could take 10 years to get the retail investor back.

He claims there is no sign the flows are changing. I think they are at least moderating. And as I said, it might take higher rates and some bond losses to make that shift.

That is, imo, the most important difference that he should have noted in making that comparison. Rates were very very high during that period. Why buy stocks when you could get 7% to 13% yield on treasuries? Now they are at historic lows.

Talking heads are very Bullish. Retail investors are very Bearish but a solid bull market needs their money.

What to do. What to do.

quote:

What to do.—BullDoug

Doug,
     Look at the DJIA volumes for the year. No big swings. The recent price decline is unimpressive compared to other ones this year. I'll be buying on the dips and selling only if I need the money or if there is an indication some individual stock will soon be going sour. That is what I intend to do. (Too bad S&P 500 volumes are unavailable.)
Seán

     As I write this DJIA and S&P Futures are down 175 and 22 points respectively. Those numbers augur evil tidings for the bullish. Monday's action, I expect, may demonstrate the difference between a dip and a debacle.
Seán

quote:

Originally posted by Sean:
     As I write this DJIA and S&P Futures are down 175 and 22 points respectively. Those numbers augur evil tidings for the bullish. Monday's action, I expect, may demonstrate the difference between a dip and a debacle.
Seán

Those are Friday's numbers for the day and not current ones. Those figures represent the drop in the futures on Friday which fell with the market.

I don't know when they update it again. I find some places don't update well on Sunday, or at all.

http://www.bloomberg.com/markets/stocks/futures.html Currently saying those are 04/30 numbers.


Check it again in a few hours or much later.

The Futures at 18:00 hours EST are positive; the debacle is doubtlessly deferred.
Seán

quote:

Originally posted by Sean:
The Futures at 18:00 hours EST are positive; the debacle is doubtlessly deferred.
Seán

My condolences on the disappointment of good news.

Doug,
     Thanks for the sympathy. Not everything went wrong, though: I have scads of AA and it is the only component of the DJIA that went down today. Not enough to make me buy some more however.
     I still have a knack for picking losers, if I do say so myself.
Seán

     How now, down Dow?
     All my stock, except for a couple of drug makers, went down on higher than average volume and there was no rebound during late trading. It was like a dream come true! I limited myself to buying more AA, which was down by more than 4%. I feel overloaded with it now, so I'll restrain myself if it goes down some more tomorrow. Instead, I'll try picking up some ING if it shows further signs of weakness.
Seán

I was considering buying some BP just prior to the spill. Good thing I tend to act slowly.

Then with the stock hammered by the spill and now the market correcting I was hoping for a price that more than discounts the cost of the spill.

Every thing I looked at was red on the down days EXCEPT BP. It went UP??? The spill and the market crashing and BP goes up? Sigh. It is up again today as the general market still tumbles.

My only guess is that some are looking at the current yield to hide in as the market turns lower. Or they think the oil price will rise.