The Influence of Perception on the Urge to Trade


Consider this scenario: You are presented with two market environments. In the first, the S&P 500 has risen nearly 10% and is holding onto its gain heading into what should be a good earnings season. In the second, the S&P 500 has not only pulled back, but also closed below its 50-day moving average for the first time in six months. Which market environment would you prefer to invest in?

If the first one sounds more enticing, or at least more comforting, than the second one, you’re not alone. We humans do not like losing money, much less incurring an identifiable risk of losing money. But what’s more interesting is that the two scenarios both accurately describe the S&P 500 as of yesterday’s close. The only difference is how they are framed; how they describe the current market environment.

Since last November’s elections, the S&P 500 has gained 9.6%. The rally has stalled as of late, however, with the large-cap index sitting 2.2% below its record closing high. This modest decline led to the S&P 500 closing below its 50-day moving average for the first time since Election Day. The breach, however, occurred at a higher level—as the index rose to higher levels, so did its moving averages. (Moving average lines trace the average price of an index, fund or security; think of them as a series of connected dots, with each dot shifting the calendar period used to calculate the average forward by one day.) As far earnings season is concerned, Thomson Reuters says favorable year-over-year comparisons for the energy sector could lead to the strongest growth in first-quarter revenues and earnings in over five years. Continue Reading »

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 Highlights from this month’s AAII Journal

AAII Sentiment Survey

Optimism remained below 30% for a second consecutive week, while pessimism stayed at or above its historical average for a ninth consecutive week—the longest such streak in nearly five years. More about this week’s results.

This week’s results:

Bullish: 29.0%, up 0.7 points
Neutral: 33.6%, up 1.6 points
Bearish: 37.4%, down 2.2 points

Historical averages:

Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%

Take the Sentiment Survey.

The Week Ahead

The U.S. financial markets will be closed today, April 14, in observance of Good Friday. To the many of you who will be observing Sunday’s holiday, we wish you a happy Easter.

Taxes must be filed by Tuesday. (Our annual tax guide may be of help.) Tuesday is also the deadline for making 2016 IRA contributions.

Computerized Investing editor Jaclyn McClellan will speak to our Denver chapter on Thursday about using stock screens to find a good a stock.

First-quarter earnings season will gain some steam next week with 68 members of the S&P 500 scheduled to report. Included in that group are nine Dow Jones industrial components: Goldman Sachs Group (GS), International Business Machine (IBM), Johnson & Johnson (JNJ) and UnitedHealth Group (UNH) on Tuesday; American Express (AXP) on Wednesday; Travelers Companies (TRV), Verizon Communications (VZ) and Visa (V) on Thursday; and General Electric (GE) on Friday.

The week’s first economic reports will be the April Empire State manufacturing survey and the April housing market index, both of which will be released on Monday. Tuesday will feature March housing starts and building permits and March industrial production and capacity utilization. The periodic Beige Book will be released on Wednesday. Thursday will feature the Philadelphia Federal Reserve’s April business outlook survey. The April PMI composite flash and March existing home sales will be released on Friday.

Four Federal Reserve officials will make public appearances: Kansas City president Esther George on Tuesday, Boston president Eric Rosengren on Wednesday, governor Jerome Powell on Thursday and Minneapolis president Neel Kashkari on Friday.

The Treasury Department will auction $16 billion of five-year Treasury inflation-protected securities on Thursday.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!
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