Every week a service called "Investors Intelligence" publishes results of a survey of investment newsletter writers revealing the collective posture -- bullish or bearish -- this group has toward the stock market. There are several ways an investor can interpret this information, whether to help make short-term trading decisions or for gauging the stock market's longer-term prospects. It is on this latter account that the December 1, 2009 Investors Intelligence survey deserves thoughtful consideration, being that only 16.7% of investment newsletters are advising a bearish posture toward the stock market.
First, let's be clear about information such as this. When a majority of investors are bullish, then assuming the greater portion of their risk capital already is invested, who else is left to buy and drive prices higher still? Likewise, when a majority of investors are bearish, then assuming the bulk of their risk capital has exited the market, who else is left to sell and drive prices further lower? Thus, you see how the Investors Intelligence survey of investment newsletter writers can serve as a "contrary indicator" of the direction stock prices in general are likely to take.
So, returning to the fact that, only 16.7% of investment newsletters are bearish, there is something of concern to think about in the context of developments over the past year. After all, the global financial system was on the verge of collapse in the autumn of 2008 and only after extraordinary measures were put in place to address this threat did the stock market finally find a bottom in March 2009. Since this bottom major U.S. stock indexes have risen north of 60%, which by all historical accounts is a monster move in such a short period of time. So, what might the present, tiny percentage of bearish vested interests suggest about the current state of the market?
Let's not forget that, among various investment assets, equities -- common stocks -- are among the riskiest because of their place at the bottom of the totem pole in the capital food chain. That is why when a public company files bankruptcy, common stockholders generally walk away with nothing to show for their investment. At a time when corporations are raising record amounts of capital in the corporate bond market this consideration is no small matter, particularly given that public officials are making it no secret that the risk to the global financial system has by no means entirely passed. Time and again we hear the situation remains fragile.
So, given the persistence of risk precipitating from the near collapse of the global financial system in 2008, should not such a small contingent of bearish investment newsletter writers strike concerned observers as representing a measure of complacency toward equities possibly ill-advised at this time?
* Tom Chechatka is a leading stock market psychology expert employing a unique brand of technical analysis to dynamically assess actions taken by the composite of market players over time. Money does, indeed, talk and its deployment in the stock market speaks volumes about the sustainability of any given trend up or down. Having become bearish in January 2000, bullish in February 2003, and bearish again in May 2008, Mr. Chechatka's big picture perspective has proven valuable to all walks of stock market investors.
His daily insights are available at his blog aptly called the Risk Averse Alert. (URL http://get-alert.co.nr)
Article Source: http://EzineArticles.com/?expert=Tom_Chechatka
