Complacency Is Making the Contrarians Nervous
Contrarian investors who heeded their mantra of never trusting the masses had a sweet ride in 2003, switching from bear to bull last March when pessimism was rampant. How will they know when it's time to turn again?
Here's where we would look for direction.
Published every Wednesday morning, the
Last week's survey had 58.3% bulls, 19.4% bears and 22.3% in the correction camp.Investors Intelligence considers the norm to be 45% bulls, 35% bears and 20% correction. But for contrarians -- who trade in the opposite direction of sentiment on grounds that general opinion in the market is usually wrong -- this steadily increasing bullish sentiment flashes a sell. Consider March 7, 2003, when the survey listed 39.8% bulls, 37.5% bears and 22.7% looking for a correction. As opposed to the Odd Lot Balance Index, which contrarians use to bet against the small investor (see below), the Investors Intelligence survey provides contrarians with a litmus of professional opinion, which over the years has shown itself just as susceptible to unproductive market emotion. As the Investors Intelligence Web site points out, "Advisers are only wrong when you get too many of them to start thinking the same thing." For contrarians seeking to track the sentiment of the individual investor rather than the seasoned pro, the American Association of Individual Investors
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