Are institutional investors courting financial losses?

September 20th, 2009

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As we write, there are more and more mainstream news report that institutional investors (e.g. the ones handling your retirement ‘savings’) are entering the market with their ‘idle’ cash. Reportedly, those investors are the ones who missed out on the rally for the past 6 months. Consequently, after the abortion of what seemed to be the start of a correction in early September (see Time to short stocks in the NYSE?), the market raced up again. Back then, the NYSE Bullish Percent Index was at 77.23%. Today, this is what this technical indicator look like:

NYSE Bullish Percent Index

NYSE Bullish Percent Index

As you can see, at 84.47% the bullish sentiment is at an unprecedented high level. It seems that the stock market is at a euphoric state of drunken ecstasy. Although that does not mean that it cannot go any higher, it means that it is vulnerable to a very significant correction. Therefore, those who are using high leverage to buy stocks at this point in time are courting financial disaster.

We do not pretend to know when the correction will come and we are not experts in technical analysis here. But for those who wants to time the market, we urge you to get some education on charting, trend following, technical analysis and so on. For this, we recommend the services of our business partner at Market Club, who has something to say about the traditional “Buy and Hold” strategy here.

In the next article, we will write about what we believe could be the trigger for the next correction (if it didn’t happen by then). Keep in tune!