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Many people stoically hold on to their stocks and mutual funds in a declining market until the pain simply gets unbearable. Then they sell -- often right near the market's turning point.
Consider the following charts. The top one shows equity funds' four-week moving average of purchases and redemptions. The bottom one shows the S&P 500's performance as measured by the SPDR S&P 500 ETF (SPY):
These charts reveal a sad truth about investor psychology: 2015's largest net withdrawals came right around the S&P 500's Oct. 24 bottom.
Mom and Pop clearly insisted on selling their stocks at the worst time possible. Then, to add insult to injury, they came back into the market just as stocks were peaking yet again during October's rally. And now, this month's sharp sell-off is triggering yet another round of what's probably ill-timed selling -- even though the S&P 500 is nowhere near as low as it was 10 weeks ago.
By contrast, consider this chart of Thomson Reuters' real-time sell/buy ratio among CEOs and other corporate insiders:
This indicator was hovering at just below 5.0 as of Friday. The lower the reading, the more bullish, because insiders don't take low prices as a reason to exit. Instead, they typically add to their positions on market weakness.
In fact, the index is not only below the 12-to-1 ratio that's considered bullish, it's as bullish as it's been over the past year. Many impressive short-term rallies have been launched from similar readings.
Some other things I'm looking at today:
- Based on supply-and-demand data, oil prices look like they're still at least nine to 12 months from bottoming out. I expect some great chances for investors to establish positions in the energy sector next summer and into autumn. Patience should pay off if you delay any buys in the sector until then.
- I'm looking to add to my stakes in Bunge (BG), Mead Johnson Nutrition (MJN), Air Products (APD), Cummins (CMI) and PVH Corp. (PVH) on weakness.
- Barron's had kind words over the weekend for two of my recent picks, Macy's (M) and Polo Ralph Lauren (RL). We'll see if either (or both) enjoy a "Barron's Bounce" today.