AAII Investor Update: Death Crosses and Negative Yields

Posted on July 20, 2012 | Investor Update

Scary-sounding descriptions of the market’s state never cease to surface during periods of uncertainty. The latest term I’ve heard is the “ultimate death cross.” This chart formation, used by Societe Generale strategist Albert Edwards, occurs when a 50-month moving average falls below a 200-month moving average. According to news reports about the market pessimist’s recent research note, this ominous-sounding indicator is close to appearing on the long-term S&P 500 chart and is a warning of a major bear market.

Among the major global indexes, it is apparently rare to see this indicator. Edwards said that the S&P 500 came close to forming an utimate death cross in 1978. The indicator did appear on charts of the Nikkei in 1988. Edwards points out that the Japanese market has been in the “embrace of the bear” ever since.

A regular (as opposed to ultimate) death cross formed on S&P 500 charts last year. On August 18, 2011, I wrote about how the 50-day moving average crossed below the 200-day moving average earlier that week. Since I wrote about the indicator, the S&P 500 has risen by more than 20%.

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GADGET CORNER – Satechi 10000 mAh Portable Energy Station

Posted on July 20, 2012 | Computerized Investing

Dual-USB battery charger pack for iPad, iPhone, or any other USB-powered smartphone or tablet.

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From the Bookshelf

Posted on July 20, 2012 | AAII Journal

“The Indomitable Investor” by Steven Sears and “Winning With ETF Strategies” by Max Isaacman are reviewed.

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Exchange-Traded Fund Resources

Posted on July 19, 2012 | Computerized Investing

The popularity of ETFs has spawned the growth of ETF data and information online. Where to find the best sources.

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Dividend Safety Signs and Warning Flags

Posted on July 19, 2012 | Investing

Many investors have sought shelter from the stock market storm in more mature dividend-paying companies, since the income from these firms provides at least some positive return in an otherwise bleak environment.

Clearly, dividend-seeking investors need to evaluate the dividend payments themselves, how steady they have been and how much you are paying for them.

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AAII Sentiment Survey: Bullish Sentiment Below Average for 15th Week

Posted on July 19, 2012 | AAII Survey

Bullish sentiment fell to nearly a two-year low in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 8.0 percentage points to 22.2%. This is the lowest that optimism has been since August 26, 2010. It is also the 68th lowest bullish sentiment reading out of more than 1,300 weekly readings in the survey’s history. Optimism has now been below its historical average of 39% for 16 consecutive weeks.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 1.0 percentage point to 36.0%. This is an 11-week high for neutral sentiment. It is also the fourth time in five weeks that neutral sentiment is above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 7.1 percentage points to 41.8%. This is the 11th consecutive week and the 14th out of the last 15 weeks that bearish sentiment has been above its historical average of 30%.

The last time bullish sentiment was lower, August 26, 2010, the market reached a short-term bottom. Though very low bullish readings have been correlated with short-term term market rebounds, optimism among individual investors can stay at low levels for a period of time.

For example, bullish sentiment fell to 18.0% on August 17, 1990. Six months later on January 25, 1991, bullish sentiment was still low at 25.0%. Over that time period, the S&P 500 rose a mere 2.5%. Thus, while our survey has been correlated with market reversals, low bullish (or bearish) readings are not causal events.

This week’s special question asked AAII members whether they thought the stock market overall is presently fairly valued, undervalued or overvalued. The votes were very close, with those describing the market as overvalued only slightly exceeding the number who said the market was undervalued or fairly valued. AAII members are split about whether fears about slowing economic growth and sovereign debt problems have been fully priced into the market.

Here is a sampling of the responses:

“Overvalued, because of sluggish U.S. economic growth, S&P earnings estimates are too high, reduced demand from Europe and China and the drag of federal debt.”
“Overvalued, since earnings will be depressed going forward due to the trend in the worldwide economy.”
“Fairly valued, given the overreactions to the fears about European debt and national and international economic growth.”
“Fairly valued. While price-earning ratios are a little low, the election and European weakness provide increased uncertainty and fear.”
“Undervalued based on historical price-earnings ratios.”
“Undervalued. Everybody is scared to death.”

This week’s AAII Sentiment Survey results:

Bullish: 22.2%, down 8.0 percentage points
Neutral: 36.0%, up 1.0 percentage points
Bearish: 41.8%, up 7.1 percentage points

Historical averages:

Bullish: 39%
Neutral: 31%
Bearish: 30%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey?a=blog

The 10 Myths of Retirement Planning

Posted on July 18, 2012 | Financial Planning

Retirement planning requires a clear-eyed analysis of future needs and income. Yet many individuals view retirement through rose-colored glasses.

Here are some of the most common myths and how you can bring reality into focus.

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Sell of the week 7/18/2012

Posted on July 18, 2012 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why SuperValue (SVU) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week 7/18/2012


Posted on July 17, 2012 | Weekly Features

This week’s AAII Weekly Features has been updated.

View this week’s “Top AAII Articles” , “Featured Stock Screen ” and “Member Question”.

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Stock Price Movements Are Unpredictable

Posted on July 17, 2012 | AAII Journal

Burton Malkiel (BM): Basically, the concept is not that the market is random or capricious, really, just the opposite: that the market is quite efficient in reflecting new information and when news arises that’s true news, the market adjusts without delay. The true news is unpredictable—in other words, if we have a headline today that says “New York digs out of yesterday’s storm,” that’s not news. What was news is that the storm was much bigger than anybody had predicted. So the true news is random or unpredictable. It’s something that you didn’t know before, such as “Egypt is in crisis.” The markets will then react without delay. But since you can’t predict true news, the market is generally unpredictable. It’s not that it’s capricious; quite the contrary: It’s that it reacts to unexpected events. And if you could predict the unexpected events, you could predict the market. But since you can’t, markets are unpredictable.

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