Only a few short weeks after a disastrous June, investors once again buried countless uncertainties regarding the world economy by pushing stocks to their best multiday performance in more than a year.

The average investor has no clue what’s going on right now — and it shows. Volatility rules the markets — and will continue to do so for the foreseeable future.

As the market began to drop at the beginning of the summer season, investor sentiment followed suit. And yes, we can and should expect more of the same knee-jerk reactions in 2010. One minute, panicking investors are liquidating their portfolios, only to kick themselves the very next week as stocks begin to rally…

The above chart shows us how these sharp dips in investor sentiment — both among average investors and professionals alike — can spark powerful rallies in the stock market. One need only look back to March 2009 for clarification. That’s the last time investment managers were so completely bearish. The average investor who responded to the Bloomberg survey (lower chart) was long biased only 20% of his portfolio. That’s outrageous considering how reluctant most amateurs are toward shorting stocks.

We now know the market overcame the historically low sentiment readings and showed us great returns in 2009. That’s important to keep in mind as the readings dip toward the March 2009 lows. Could we be granted a reactionary rally that lasts more than just a couple of trading days? It’s possible…

Sentiment follows performance — everyone is simply chasing the direction the money is flowing. We want you to break the cycle. That’s the best way to consistently see long-term profits.

Reevaluating Our Opportunities

Of course, just because we think there might be a huge disconnect between how stocks may behave and how people think they will behave doesn’t mean we’re putting your open positions on cruise control.

In fact, Agora Financial’s small-cap team has been spending a good deal of time reevaluating the our open and closed positions to get a better idea where we stand and what we need to do to build on the successes of 2009.

And we think we’ve found it…

If you haven’t already gotten a chance to see it, I just completed recording a short video about the “$200 wealth blueprint” that I think has the biggest chance to deliver large gains in 2010. You can watch the video right here. It’s free, it’s concise, and I break down my blueprint step-by-step.

Sincerely,
Greg Guenthner
Penny Sleuth

July 22, 2010

Greg Guenthner

Greg Guenthner heads up Agora Financial’s small-cap division and is the founder of one of the only independent OTC research advisories in the industry. A graduate of George Mason University, Guenthner joined Agora in 2005 after several years as a journalist. He is managing editor of Penny Stock Fortunes and Bulletin Board Elite.

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