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Time Magazine is the cover we will review. On the December 2009 cover, the Federal Reserve Chairman, Ben Bernanke is named “Person of the Year”. He is credited with saving the U.S. economy through buying “toxic assets” from the troubled U.S. banks and implementing a massive Wall Street financial bailout. His picture (on the cover) is placed in front of what appears to be a dollar bill, a spot reserved for American Presidents. This clearly marks an extreme in societal sentiment and hints at the possibility of a short term market peak (the cover is not included in this posting due to the possibility of copyright infringement).The AAII survey for the week of Jan 8th, 2010 shows the bulls decreased from 49% to 41% and the bears increased slightly from 23% to 26%. What is most interesting last week from the AAII survey is not the sentiment data but the shift in asset allocation. Amazingly, the average AAII investor increased their exposure to the stock market by +15% points to 64%. That is the highest level since, October 2007. The rest is equally divided between cash and bonds.
The chart included in this posting shows a weekly chart of the Dow Jones Industrial Average. I have indicated on the chart were the index value was during the previous and current Asset Allocation Extremes. It is truly remarkable to see that the asset allocation extreme in October 2007 occurred right at the market peak. When the buyers are "all in" who is left to push prices higher? Naturally institutions and hedge funds will still continue to push some equities higher but they will be selective in their choosing. This leaves the inexperienced stock picker at a real disadvantage. This asset allocation extreme indicates the possibility of a major market top.
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