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Trading the markets mood

  • By David Bukey,
  • Active Trader Magazine
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Stocks got slaughtered the first week of March as the S&P 500 index (SPX) fell to its lowest level since September 1996 and the Dow Jones Industrial Average (DJIA) officially dropped 20 percent from Inauguration Day, leading pundits to label it the Obama bear market. Amid the chaos, the American Association of Individual Investors (AAII) released results of its weekly member survey in which 70 percent of respondents were bearish — the most pessimistic reading in 21 years. Such a negative reading from the AAII survey is a dream come true for contrarians, who argue that when the crowd becomes too frightened or greedy, the market is likely to change direction. Clearly, investors were throwing in the towel at this point, which can be the best time to buy stocks.Read on to learn how to use this sentiment indicator in your trading or investment strategy.

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Article copyright 2011 by Active Trader Magazine. Reprinted from the April 2010 issue with permission from Active Trader Magazine.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
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