Hey, Ross here:
Let’s look at a chart which shows how retail investors may be turning bearish on this rally – and why this is a good thing.
Chart of the Day
This is the difference in bullish vs. bearish individual investor sentiment as measured by the American Association of Individual Investor’s (AAII) Sentiment Survey.
As you can see, while the bulls still outnumber the bears, that difference has fallen sharply over the past week.
Last week, nearly 20% of polled investors were bearish. Now, that number is above 27%.
Clearly, the largely sideways price action over the past couple of weeks has taken its toll.
But as I explain in the Insight of the Day – this is a good thing.
Insight of the Day
A significant percentage of retail investors are “weak hands” that need to be shaken out before the market can move higher.
This is simply the truth of the matter.
Many retail investors are unsophisticated, and their investment decisions are highly susceptible to short-term market movements (this is different from trading).
They are what we call “weak hands”…
And during periods of sideways price movement after a strong rally – like the one we’re in now – they get “shaken out”.
This often sends the market lower for a bit…
But it’s actually a sign of a healthy pullback.
Because for the market to make a strong move higher, these weak hands must first be removed.
Yes, it’s counterintuitive – but so is the fact that the November rally started when bearish sentiment was at its highest.
The point is – when a pullback happens, don’t let it scare you off.
It’s actually an opportunity, so act accordingly.
This isn’t anything new, by the way.
“Weak hands” have always existed in the market…
And them being “shaken out” is a strong predictor of subsequent big upward moves – especially in individual stocks.
I saw this first hand while working in one of the biggest banks on Wall Street…
The institutional investors would deliberately engineer the shakeout of these “weak hands” in the stocks they own – so they could profit from the price surge after.
But if you know how to spot the exact stocks these institutions are engineering these shakeouts in…
You could profit from the big price move after as well.
I show you exactly how to do this right here.
Have a good weekend.
Embrace the surge,
Ross Givens
Editor, Stock Surge Daily
