Wednesday, September 7, 2011

For Those With Extra Cash, Buy Some Stocks

Though prominent Wall Street strategists featured in Barron's recently nearly unanimously reiterated their optimism about the stock market for the rest of the year, I at least agree about near-term prospects.

One of my favorite contrarian sentiment indicators is the put-call ratio.  It recently surged to a level even higher than it was late last summer, before a rebound of more than 20% in stock prices.  In addition, a third-party sentiment indicator that I follow shows sentiment levels to be depressed, which has historically been followed by rising stock prices.   

I also pay attention to insider buying and selling, especially with individual companies.  In aggregate, insider buying relative to selling recently reached the highest level since the market bottomed a year ago.

These indicators, combined with attractive valuations on leading company stocks, suggest that for those with significant cash reserves, it is a good time to be buying some stocks--despite the historic tendency for market declines in September and October.

Steve Lehman

S & P 500:  1165

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