Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Stock Market Indicator Says the Time to Buy is Near

Stock-Markets / Stock Markets 2010 Jul 02, 2010 - 11:00 AM GMT

By: Q1_Publishing

Stock-Markets Best Financial Markets Analysis ArticleMy favorite indicator is showing “yellow” and is on the verge of flashing “green.”

I know, I know…things look very pretty dreary right now.

Just three weeks into the government’s “Recovery Summer” publicity campaign, most economic indicators are falling. Home sales have plummeted. Consumer sentiment is down. And stocks, as a group, are falling daily.

Then tomorrow we’ll likely get another unavoidable reminder of how bad the jobs situation is. Tomorrow’s jobs numbers are expected to come in somewhere between bad and worse. Bloomberg’s survey pegs the estimated for job losses between 200,000 and zero.

There’s almost no good news to report. Fears of a double-dip recession are real and we continue to expect to spend the next couple of years dipping in and out of recessions.

But there are, and will continue to be times, when both bearish is overblown. One of the best market sentiment indicators I know of looks like we’re about to reach one of those times.

Voting with Feet

The best sentiment indicator is one no one ever pays attention to.

It’s something we’ve come up with to get a snapshot of true market sentiment unbiased by the headlines, emotions, and any other factors that hamper your decision-making when the markets are falling.

The indicator which correctly indicated near-term bottoms in the fall of 2008 and March 2009 is based on the trading of closed-end funds (CEF).

You see, CEFs are like mutual funds but trade like stocks. The key difference is that mutual fund prices are based on net asset value (NAV) of all the funds’ holdings at the end of each trading day.

CEFs, on the other hand, are priced by the market. Their prices are determined by what an investor is willing to pay for the fund. The price normal hangs around the NAV of the fund, but it trades at either a discount or premium. The premiums are high when stocks are on the rise. Most trade at a discount when stocks are going down.

The CEF Indicator Nears “Buy” Range

Normally, 35% to 50% of CEFs carry a premium to NAV. But when fear is high, like during the credit crunch hit of2008 when overleveraged investors were forced to sell everything, CEFs were absolutely decimated.

In 5 Signs of a Market Bottom, published on October 28, 2008, we wrote:

Two weeks ago, when the markets seemed like they just couldn’t get any worse, only 18 of the 597 (just 3%) closed-end funds were fetching a premium.

That was the lowest number I have ever seen. The bearish sentiment in closed-end funds was peaking.

Now, 57 of the funds are trading at a premium. By historical standards, anywhere from 35% to 50% of them should be trading at a premium during a flat market. With only 9.5% of them trading at a premium to NAV, the markets are clearly overly bearish.

At the height of a panic, 3% of CEFs had a premium. As the “Obama-Rally” kicked off, 9.5% of them were trading at premiums to their NAV.

Now, after a long solid run for the markets and a recent turn for the worse, bearishness is starting to manifest itself in CEFs again.

As of today 22.9% of equity CEFs tracked by are trading at a premium.

That’s well below the 35% to 50% historical average. Granted, right now is not the “sure-thing/things can’t get any worse” type of short-term bottom we saw when only 3% of CEFs were trading at a premium. But at 22.9%, its clear bearishness is pretty strong.

That’s why we’re starting to look for the light at the end of this short-term tunnel.

Buy Fear, Sell Confidence

Right now investors are clinging to the sidelines. Money market fund assets are at $2.8 trillion. The 10-Year U.S. Treasury Bond has become so popular it now yields a mere 2.94%.

Even private equity firms, which are notoriously aggressive with massive financial leverage (a.k.a. borrowed money) and other people’s money, are sitting on $500 billion cash according to the New York Times.

Despite all the negativity, the makings of a turnaround are forming.

Fear is high and values are getting more enticing. Meanwhile, investors are getting practically no return in safe investments.

It seems like everyone is hoping for some good news. And it probably won’t be long until we get to a point again where good news comes or, as hope grows, we reach a point where bad news “isn’t as bad as expected.”

Now is not the time to get down, it’s the time to look for the real opportunities. In the next Prosperity Dispatch we’ll look at one sector which has been absolutely decimated over the last few months while the fundamentals have only improved.

Discounted CEFs are a great way to wade back into the markets with less risk and more reward than stocks. Closed end funds are offering some stellar values right now.

In our most popular premium advisory service, Andrew Mickey’s Prudent Investing, we’ve used them to maximize returns and reduce risk by buying them when the discounts to NAV are just too extreme.

There are currently two of them recommended both trading at significant discounts to NAV. One is trading for 25% less than NAV. It’s like buying stocks for 75 cents on the dollar. The other we’re up 90% on and earning effective yield of more than 15%.

Learn more here about joining up and take advantage of “unconventional” ideas now.

Until then, good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in