Britannia Radio

Investors Are Scared… Is the Correction Over? By Dr. Steve Sjuggerud Friday, August 5, 2011 "The sky is falling. America, as we know it, is crashing. Thoughts of Armageddon are now mainstream. The world is ending… So let's buy stocks." My friend Jeff Clark wrote that this week. Jeff is the best short-term trader I know. He typically trades options. According to the S&A Digest newsletter, Jeff's readers have recently booked gains of 80% in a day, 80% in a week, and 55% in a week. Right now, Jeff says the last two times we've seen these particular setup conditions in the stock market, the S&P 500 stock index has rallied 75 points in a few weeks. I track different indicators than Jeff… but we often arrive at the same conclusion. Right now, I see that individual investors are scared. When that happens, you want to buy stocks. My friend Jason Goepfert does the best job of anyone I know tracking investor sentiment. And he just wrote that individual investors "got shaken pretty hard by the latest string of down days." The "bull ratio" is based data from the American Association of Individual Investors. Individual investors have been so shaken that the "bull ratio" for is currently at one of the lowest levels of the last decade. Recently, when it's gotten this low, stocks have popped shortly after. Check it out… According to Jason, when we see readings this low during bull markets, stocks have been higher three months later 87% of the time. So Jeff Clark and Jason Goepfert think the correction is likely over based on the technical setup and the extreme of pessimism that we reached. They both think the market is going higher. Meanwhile, stocks are relatively cheap now… For example, the forward price-to-earnings ratio of the Dow is 11.7. We haven't seen levels this low since July 2009. Combine low valuations with scared investors, and all were missing is the uptrend… But even without the uptrend, I'm putting my chips with Jeff and Jason. Individual investors are scared… The correction is likely over. Good investing, Steve Further Reading: Last month, Jeff told Growth Stock Wire readers that gold stocks were "one of the best risk/reward trades in the market." Two weeks later, the big gold stock fund GDX, was up 12%. See how Jeff knew gold stocks were ready for a big rally. DailyWealth classic: Steve has been following Jason's advice for years. "I use his research every week," Steve says. "To me, it is worth 10 times – or 20 times – what he charges per year." Learn more about Jason's research here: My Biggest Edge in the Market. Email Story Print IT'S NOW A BIG BEAR MARKET IN BRAZIL The red flag of Brazilian stocks continues to fly over the commodity sector. Several months ago, we noted the budding weakness in Brazilian stocks as a reason to stay cautious toward commodity investments. Brazil is one of the ultimate destinations for investors who want exposure to commodities. Its state-operated oil company Petrobras has found a series of giant offshore oilfields in the past decade. Brazil is a major producer of agricultural commodities like soybeans, cattle, corn, coffee, and sugar. It's also a major producer of iron ore. All this makes Brazil a great way to gauge the market's opinion of commodity investments. When we wrote this piece in May, the market was just starting to send Brazil's benchmark index lower… which we called a "red flag" for commodities. As you can see from today's chart, things are getting worse down south. After surging higher off its 2008 credit crisis low, Brazil's benchmark stock index traded sideways for over a year. But in the past four months, this index has plunged to new low after new low. This week, it struck its lowest point in more than a year. We state again: If commodity investments are to gain in 2011, they'll need Brazilian stocks at the front of the pack. Right now, they are lying down and playing dead.