Time to Follow the Smart Money?

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The Rude Awakening Thursday, March 14, 2013 | 0900 Hours Time to Follow the Smart Money? "Dumb Money" walks Hedge funds make a couple of big bets Plus: The waiting game, continued... Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner The dumb money always gets suckered into the market at the wrong time. You don't have to dig up your old history books to find the proof, either. Just look back a few months to December. Your average investor took his money and ran as far from stocks as possible because he was worried the fiscal cliff would tear the markets apart. Now, after record inflows into the stock market earlier this year, it looks like individual investors are taking some money off the table. According to a research report from Bank of America Merrill Lynch, the firm's private clients are signaling retreat... "BofAML private clients--who have been the sole net buyers of US stocks this year-- have begun to take profits as the S&P 500 continued its ascent," the report reads. "This group has now sold stocks in three of the last six weeks, after near-record net buying earlier this year." That didn't take long... But as individual investors begin to back out of the market, the smart money has been more than happy to pick up their shares--and then some. Hedge funds started buying at record rates last week, picking up large positions in the consumer discretionary and financial sector, as well as ETFs. According to the BofA Merrill Lynch report, last week's net buys of consumer discretionary and net sales of utilities were the largest on record. That's some pretty bullish action. Utilities are considered a defensive sector, while consumer discretionary stocks are largely dependent on big spending from the general public... Of course, there are no guarantees that the smart money is making the right move here. But it would be wise for you to keep some skin in the game if big players are going to continue piling into stocks. Rude Numbers Targets, Predictions and Wild Guesses 9 straight days higher for the Dow as of yesterday's close... That's its longest winning streak since 1996. 1,565 marks the S&P 500's record close set on Oct. 9, 2007. As of yesterday's close, it's only about 11 points away... $1,578 buys an ounce of gold this morning--dropping from its highs that almost reached $1,600 earlier this week... 300,000 new vehicles per year will eventually roll off a brand new Volkswagen plant in China. VW is looking to increase production 60% by 2018 in China, according to Bloomberg... 2 big economic reports--jobless claims and PPI--could move the markets this morning. Rude Trends When to Buy... When to Sell "I am in a holding pattern right now," writes a slightly skeptical reader. He's referring to his portfolio, of course. A small chunk in stocks--the rest waiting on the sidelines. As I continue to read through page after page of your responses to my big investing question (What are you buying/selling right now?) I'm finding plenty of sidelined investors. In fact, waiting it out seems to be your standard response. From what we've seen reported in the bigger surveys outside my little experiment, that's right in line with the larger sentiment picture... I'm doing my best to get through all of your feedback today. I'll report back with the final results shortly... [Ed. Note: Send your feedback here: rude@agorafinancial.com... and don't forget to follow me on Twitter: @GregGuenthner] Ignore At Your Own Peril Today's Must-Read Links New Tobacco Discovery - Better Than ObamaCare? Patient Zero: Learn how one man's sacrifice may lead to the greatest scientific discovery of all time... 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