Thursday, June 28, 2007

Technical Thursdays: The (not-so-dumb) Little Guy

If the investment pros are the "smart money", then the little guy must be the dumb money. But is that true? Here are some facts to consider:

This chart contains the weekly data from the American Association of Individual Investors for 2007, up to last Friday. The blue bars are the net bullish over bearish results. The red bars are the 3 week moving average of the same data.

This is the weekly performance chart of the S&P 500 over the same time period.

So, what does the data reveal?

* The little guy was quite bullish right up the mini market correction of late February.
* He remained bullish, albeit less so, as the rally resumed.
* He swung dramatically to the bearish side just before the market flattened out in early May.
* He has remained neutral to slightly bearish ever since, moving slightly to the bullish side last week.

What does this tell us?

Investment Strategy Implications

According to this data, the little guy appears to have a little more on the ball than the "smart money" is willing to give him credit for. He rode the early 2007 bull run, then stuck around a bit too long. He bent but did not break as the mini correction shook the market. Then he resumed his bullish sentiment right up to the time when the market went flat.

Conclusion: Maybe not so dumb, after all.

To view a larger version of the above charts, click on the image.

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