80%+ Chance Stocks Will Rally by End of 2012 – Here's Why

So says Lou Basenese (www.wallstreetdaily.com) in edited excerpts from his latest article”.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Basenese goes on to say, in part:

If you’re worried this frame of reference is too short, fear not. If we extend our analysis back to 1987, when AAII started tracking sentiment, the same tendency holds true.

According to Bespoke Investment Group, when the bullish reading is one standard deviation below the long-term average, stocks rally 78.7% of the time. When the reading drops to two standard deviations below, stocks rally 100% of the time over the next six months.

Here’s the key, though. If the reading drops another three-and-a-half percentage points, it would be a full two standard deviations below the long-term average. That would mean there’s a 100% chance stocks will rally over the next six months.

Long story short: Based on the extremely low bullishness in the market, the time to buy stocks is now especially when we consider the other bullish fundamentals working in our favor like analyst sentiment, unemployment trends, earnings reporting season and the fact that it’s an election year, not to mention that stocks are trading on the cheap. The price-to-earnings ratio for the S&P 500 Index rests at 14, which is about 10% below the long-term average.

Bottom Line:…

When bullishness drops below 19%, stocks rally 100% of the time. By double-digit margins, too, and with the latest reading within spitting distance of that threshold, I suggest that you act like a contrarian and do what’s extremely unpopular – buy stocks! Six months from now, I bet you won’t regret it.

*http://www.wallstreetdaily.com/2012/07/23/when-this-indicator-hits-19-stocks-always-rally/  (To access the above article please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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