I was shocked by a headline I saw this week:

“33% Of Investors Over 65 Sold All Their Stocks This Year”

It was on the Financial Advisor Magazine website and referenced a study by Fidelity.

It seemed unlikely to me that so many investors could sell. I tried finding the original data source, but no one I contacted was able to provide the specific report that was mentioned. I did find something in Wall Street Journal that seemed to be the source of the headline…

“Data from Fidelity Investments suggests millions of individuals have decided to do the latter. Of the 7.4% of investors ages 65 and up who made a change to their portfolio between February and May, nearly a third moved some money out of stocks.”

Let’s break that down. For every 1,000 investors at Fidelity over the age of 65, an average of 74 used the market selloff to adjust their portfolio. About 25 out of 1,000 sold all of their stocks. That’s 2.5%, not 33%.

Broken down, the data is less alarming. And, when looking at the original information, I feel like the headline is false. Not just misleading, but false. However, I think the headline is just an example of the current market psychology.

What This Actually Says About Sentiment

First of all, the headline was in Financial Advisor Magazine. That’s a biased audience. They want to believe that the individual investor needs their help. Selling in a panic is exactly what a financial advisor would help to prevent, so the audience liked stories like this.

But the article was picked up elsewhere, and that’s an example of the bias of the financial news media. Many in the media are arguing the bear market is over. Stocks are running to new highs, and anyone who sold is missing out.

Financial media always has a bias, and the bias seems to be to the bullish side for now. But the media bias is driven by what works. Media companies exist to make money, and they tend to tell readers what they want to hear. Headlines like this tell me that the public is clicking on bullish headlines and the media is simply meeting demand.

I should note that I believe this is an example of a bullish headline because it confirms the opinion of those who didn’t sell. Believing that a third of investors sold might make those who didn’t sell feel smarter. So, they click to see why so many panicked while they remained calm in the decline.

Here’s The Facts About Sentiment

The average investor seems to be resisting the idea that this is a bear market.

Below is the latest data from the American Association of Individual Investors (AAII) weekly sentiment survey.

This survey dates back to 1987. In an average week, 38% of investors are bullish, 30.5% are bearish and 31.5% are neutral. Last week, there was a significant increase in the percentage of bears.

Source: AAII

At important turning points, we tend to see the number of neutral investors in the single digits. With less than half of investors bearish and the percentage of neutral investors near its average, this data indicates the market is likely to fall more.

Why This Matters

That could explain the significant resistance we are seeing in the S&P 500 Index.

The blue rectangle shows the island gap reversal I highlighted last week. I extended the rectangle to include this week’s market action, and the rectangle served as resistance three times last week.

Traders seem to be selling rallies for now, and that should lead to lower prices over the next week or so. I am optimistic we will see a rally near the end of the month. But that rally is likely to begin from a sharply lower price level.

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