The number of individual investors who have a bullish outlook on the stock market for the next six months plunged to 21 percent, from 30 percent last week, according to a widely followed sentiment survey.
What’s more, this is the lowest weekly reading from the American Association of Individual Investors since a March 2009 level of 19 percent, which occurred just before the S&P 500 collapsed to a 12-year low of 676.
So effectively, individual investors feel as good about stocks as they did at the very depths of the credit crisis, even though the S&P 500 is still more than 50 percent higher than that low.
Looking at the events of the past five days (the survey is completed every Wednesday) not much comes to mind that would trigger such a surge in pessimism. There was the record plunge in July existing home sales on Tuesday, but the stock market actually almost finished higher that day as traders speculated that was just the after-effects of a tax credit that pulled sales forward.
Perhaps the individual investor is just feeling the same frustration and fatigue of famed hedge fund manager Stanley Druckenmiller, who hung it up last week after 30 years of running his fund.
“While the joy of winning for clients is immense, for me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain,” wrote Druckenmiller in his August letter to investors.
The contrarian view of many professional traders out there is now that four out of five retail investors have given up, it is time to buy.
“It’s a good sign that a short-term bottom is in,” said Peter Boockvar, equity strategist at Miller Tabak in New York.
The only problem is that individuals typically throw in the towel after getting knocked out by a bear market. Considering the volatile grinding by the equity market over the last 12 months that has left the S&P 500 essentially little changed, you can call this a T.K.O.
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