Investor Confidence Remains Above Historical Average

Includes: EZA, IYK, RTH, TIP
by: John Scherr
This week's Confidence Survey results from
  • Bullish: 54.9%, up 8.6 points
  • Neutral: 32.9%, down 3.9 points
  • Bearish: 12.2%, down 4.6 points
Long-term averages:
  • Bullish: 36%
  • Neutral: 31%
  • Bearish: 33%
Click to enlarge

Markets Confidence Survey Highlights

Bullish confidence jumped 8.6% percentage points to 54.9% in the latest WhisperNumber Confidence Survey. The percentage of individual investors expecting stock prices to rise over the next three months remains well above the four year historical average of 35.8%. Bullish confidence has now been above its historical average since November 18th, 2011.

Neutral confidence, expectations that stock prices will stay essentially flat over the next three months, dropped 3.9 percentage points lower to 32.9%. This is coming off last week's seven month high. This is only the ninth out of the past twenty-one weeks where neutral confidence stayed above its four year historical average of 31%.

Bearish confidence, expectations that stock prices will fall over the next three months, moved 4.6 percentage points lower to 12.2%. This is the first week that pessimism has decreased over the past four weeks. Bearish confidence remains below its four year historical average of 33% for the 9th consecutive week.

Over the past few weeks members continue to be more positive about the short-term outlook for stocks. This is particularly evident in the bull-bear spread (bullish confidence minus bearish confidence), which is positive for the ninth consecutive week. Optimism has been high but cautious as concerns about the economy, recent earnings reports, and (of course) the European sovereign debt weigh on individual investors' moods.

Longer term (one year out) investors remain market optimistic. Long term market confidence moved 1.9 percentage points higher to 75.6%. This reading has remained above its four year historical average of 61.5% for eight consecutive weeks.

The majority of investors (72%) are confident that buying common stocks is the best long term place to invest money. This is a 5 percent decrease from last week's survey. Cash and bonds remain at the bottom of the list for investors when it comes to investment categories that will provide the greatest percentage return over the next three to five years.

Confidence continues to indicate oversold markets for the Africa (NYSEARCA:EZA) and Middle East (^DWMFBS) regions. Investors have been a bit over confident with the small cap market as the Russell 2000 (RUT) reading jumped to an overbought level in our Feb. 17th survey, and remains in an overbought market trend.

This week we gained three new long position (oversold market) readings in the consumer non-cyclical sector (NYSEARCA:IYK), Services sector (NYSEARCA:RTH), and the Treasury Bond (NYSEARCA:TIP) market. All three are up in today's trading.

To view the full report click here.

For the past eight years has conducted financial markets confidence surveys. The surveys run every Thursday (8am ET) through Friday (9pm ET). On average, each survey receives responses from over 750 individuals. Respondants consider themselves active investors and traders, and the survey covers the US major markets, global markets, sectors, ETFs, bonds, metals market, and CRB index.

We believe the following two statements best summarize market confidence data:

  • When market confidence reaches an 'extreme high', it signifies the last buyer has bought. As the market no longer has any buyers, prices can only go down.
  • When market confidence reaches an 'extreme low', it signifies the last seller has sold. As the market no longer has any sellers, prices can only go up.

We look to see where the 'herd' is headed, and take the opposite route. The 'herd' (in this case actual investors) are usually chasing a market higher or lower. In some cases chasing the market does yield positive results, but in most cases chasing a market ends up in losses. Analysis of our data concluded we were taking a snapshot of sentiment that indicated the opposite of actual market moves. Thus, it required contrarian interpretation in order to be accurate.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.