Market Brief: Thursday, August 26, 2010

Between not having a clue on how much you will spend for your Federal government's services next year, Hindenburg Omens, Black Crosses, New Normals and tea parties, investors are sour or at least uncertain about their future, particularly their immediate future.

As you can see in the chart below, the number of bullish respondents plummeted to the low 20s for the recent AAII Investor Survey.  According to Jason Goepfert of Sentimenttrader.com, a bullish reading this low (indicating investor apathy) has occurred 48 other times since 1987.  Over the ensuing three months, the market was up a whopping 98% of the time and was up an average of 5.8%.  If absolutely none of this brightens your mood at all, would it help if we called it the Rainbows and Unicorns Omen?

AAII Bullish Percentage Dropped Dramatically

Furthermore, as we've mentioned before, the period before mid-cycle Congressional elections is usually very tense.  However, investors who stick it out and participate in the six months after the election have historically been well-rewarded.

Mark Dodson, CFA