Investors Are Feeling Bullish Again — Here’s Why That’s Good News For The Market…
Stocks can move higher simply because there are more potential buyers than sellers.
That’s the simplest definition of how an uptrend develops in stocks. When buyers are more enthusiastic about getting into stocks than sellers are about getting out, prices rise. While that’s a simple explanation, understanding how to measure enthusiasm and money flows is extremely challenging. There are a number of indicators to consider, and then the indicators need to be integrated into a coherent view of the markets.
This week, I want to start with a look at enthusiasm.
Sentiment improved significantly last week, according to the American Association of Individual Investors survey.
Every week since 1987, AAII conducts a survey. There’s just one question in the survey — are you bullish, bearish, or neutral about the next six months? The results have been surprisingly useful.
I say “surprisingly” because it seems as if respondents could say one thing and do another — this is often seen in political polling, where candidates often do better in elections than in polls. That’s because respondents might be reluctant to admit they like flawed candidates even if they are willing to vote for that person.
The same problem would seem to be possible in this survey. Respondents seem like they would react to news. But that doesn’t seem to be the case.
Over the past couple of weeks, investors could have been worried about a new variant of the Delta variant of Covid-19, a continued standoff in Congress that could lead to a default in Treasury securities, inflation, and a number of other bad news stories. All of this should point to more investors in the bearish camp, right?
But that’s not what the survey shows. Despite so much negative news, there was a large shift into the bullish camp. This shows that individual investors want to be invested in stocks and are looking beyond the news to find investment opportunities.
I believe this is bullish. Even though individual investors don’t have the same kind of deep pockets as large, institutional investors, combined they have hundreds of billions of dollars in cash that they would like to add to the stock market. That can be seen in the next chart.
This chart shows that there is about $1 trillion in money market funds. Individuals generally hold some cash, but that level was about $700 billion after the economy recovered from the 2008 recession. That extra cash, possibly $300 billion, could push stock prices significantly higher.
What My Indicators Are Telling Me Now
Now, looking at SPDR S&P 500 ETF (NYSE: SPY), my indicators remain bullish.
Income Trader Volatility (ITV) gave the “buy” signal I expected to see when the indicator (red) dropped below its moving average, the thin blue line in the chart below.
My Profit Amplifier Momentum (PAM) indicator shows that momentum is increasing as it continues to push higher.
PAM is designed as a short-term indicator. It shows the rally is likely to continue this week, although a short-term pullback remains possible.
For the short term, based on my indicators, I remain bullish and will consider a pullback to be a buying opportunity.
In the meantime, my colleague Jimmy Butts released a “shocking” report about Elon Musk’s secretive Starlink project — and how you can profit…
The billionaire entrepreneur is slowly taking a step back from Tesla – and we think we know why. After extensive beta testing, Starlink is about to go “live” soon – and it could be his latest “game-changer,” just like PayPal, Tesla, and Space X.
Even though Starlink is “off-limits” to regular investors (for now), we’ve uncovered a “backdoor” that gets you in on the ground floor… lightyears ahead of other investors.