IPFS
A Pause in the Bernanke Asset Bubble Starts Now
Written by Sierra Hancock Subject: Economy - Economics USA
A Pause in the Bernanke Asset Bubble Starts Now
Steve
Editor's note: For more insight and actionable investment advice on protecting your wealth in a difficult market, consider a trial subscription to DailyWealth.
Our mission at DailyWealth is to show you how to avoid risky investments, and how to avoid what the average investor is doing. We believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular. Click here for details on a free trial subscription.
My True Wealth subscribers have been making a fortune from the Bernanke Asset Bubble...
The secret has been to STAY IN THERE.
It's simple: Fed Chairman Ben Bernanke won't care at all if he
causes asset prices to soar in just about every category – stocks, gold,
commodities, whatever. He won't care because bubbles here are simply
the "collateral damage" in his campaign to get the economy going again.
So True Wealth subscribers have pocketed big gains as the bubbles inflate, simply by hanging in there. (I've pounded DailyWealth readers over the head with the "stay in there" idea, too.)
It was easy to get into this trade back in July, when investor
sentiment was terrible. That's when you want to buy stocks. So that's
what we did.
In the July 9 DailyWealth, my headline was: "A Three-Month Rally in Stocks Starts Now." At the time, only 21% of individual investors were bullish on stocks. We got in.
I reiterated my confidence on September 1, for the same reason. My headline then was: "There's a 98% Chance Stocks Will Be Higher in 90 Days." The sentiment level was the same... 21% of individual investors were bullish. It was an incredibly low reading.
Today, we're in the opposite situation.
Today, "the Dumb Money is 71% confident in a rally," my friend
Jason Goepfert wrote. Jason tracks investor sentiment through his
website SentimenTrader.
The last time the Dumb Money was this optimistic was back in April, right before the Dow lost a quick 1,500 points in three months.
At this moment, a truckload of Jason's indicators are flashing
warning signs... "We now have more than 40% of our indicators with a
bearish extreme," Jason writes, "and 0% with a bullish one. This is only
the third time since 2000 we've seen such a thing."
Also, Rydex mutual traders trading the Nasdaq 100 Index "now have
34 times more money invested in the long fund versus the inverse fund,
which is the highest ratio since the bubble days of 2000 and early
2001."
It's never cut-and-dry with investor sentiment. It's more a
weight-of-the-evidence thing. And right now, the weight of the evidence
is clearly negative.
But here's the thing: When investor sentiment peaks, it DOES NOT
always mean the stock market will fall. Quite often, in a rip-roaring
bull market (like this Bernanke Asset Bubble), you could see the market
move sideways for three months instead of fall off a cliff.
Investors are optimistic right now. It's a danger sign. The market
might not move straight up over the next three months. It might go
nowhere. It might fall. But ultimately, I think the Bernanke Asset
Bubble has the ability to steamroll over this sentiment indicator.
We have the potential for a setback in the market. But I prefer to stay in stocks, with a close eye on my trailing stops.
I recommend you do the same...
Good investing,
Editor's note: For more insight and actionable investment advice on protecting your wealth in a difficult market, consider a trial subscription to DailyWealth.
Our mission at DailyWealth is to show you how to avoid risky investments, and how to avoid what the average investor is doing. We believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular. Click here for details on a free trial subscription.
Further Reading:
If you're taking a cautious turn on stocks here, don't miss Jeff Clark's
Saturday essay. He shows readers the one number to watch next year. Get
the details here: The Early Warning Signal to Follow in 2011.
Six weeks ago, Steve told readers to sit tight.
"Don't sell your winners now for a quick profit," Steve wrote. "Now,
more than ever, don't accept a single when you can hit a home run." It
was the right advice... Stocks are up another 4.5%. You can follow that
same advice to a tenfold return or more. Learn how here: How to Turn a 100% Gain into a 1,400% Gain.
Watch Streaming Broadcast Live:
LRN.fm
DLive
Live Chat
Telegram
Telegram
