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Saturday, April 13, 2013

Lame Expectations

Bull and bear in front of the Frankfurt Stock ...
Bull and bear in front of the Frankfurt Stock Exchange (Photo credit: Wikipedia)
By Rude Awakening

Baltimore, Apr.13, daily stocks .- Buy low expectations, not low stock prices.”

If you learn only one thing about the stock market today, this should be it.

The quote is courtesy of Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. The advice couldn’t be more important during this particular market rally...

Stocks cranked up to new highs yesterday. The S&P is within spitting distance of 1,600 for the first time ever. Meanwhile, the Dow is trailblazing toward 15,000.

This fascination with new highs and round numbers -- combined with a credit crisis hangover that just won’t go away -- has created a massive disconnect. At a time when you would traditionally expect investors to start to believe in this rally, you’re getting the exact opposite reaction. Euphoria is nowhere to be found. Instead, investors are strapping on helmets, waiting for stocks to nosedive.

Stocks are up. The trend is clearly up. Yet investors hate stocks more than ever.

I’m not just pulling this idea out of a hat, either. The American Association of Individual Investors released its latest sentiment survey yesterday. The results speak for themselves:

“Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 16.2 percentage points to 19.3%. This is the lowest level of optimism recorded by the survey since March 5, 2009. The historical average is 39%.”

That’s nutty. Investors are more bearish than they were at the very climax of the last bear market.

This means one of two things:

Investors -- taken as a whole -- have somehow become smarter than they’ve ever been in recorded history and have miraculously timed a market top.


Sentiment levels still work as the ultimate contrarian indicator. Record pessimism will help propel the market higher in the long- term, and you should buy these low expectations and reap the rewards.

I think you know the answer...

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