The American Association of Individual Investors (AAII)
Sentiment Survey measures the percentage of individual investors who are
bullish, bearish, and neutral on the stock market for the next six months;
individuals are polled from the ranks of the AAII membership on a weekly basis.
The current survey result is for the week ending 05/25/2016. The AAII reports
that the percentage of individual investors optimistic about short-term gains
occurring in the stock market is at its lowest level in 11 years. At the same
time, the percentage of investors describing their outlook as neutral is at its
highest level in 16 years, according to the latest AAII Sentiment Survey.
Optimism is below 20% and neutral sentiment is above 50% on the same week, for
just the sixth time in the survey’s history. Bullish sentiment, expectations
that stock prices will rise over the next six months, declined 1.6 percentage
points to 17.8%. This is the lowest level of optimism recorded by the survey
since April 14, 2005 (16.5%). It is also the 29th consecutive week and the 62nd
out of the past 64 weeks that bullish sentiment has been below its historical
average of 39.0%. Neutral sentiment, expectations that stock prices will stay
essentially unchanged over the next six months, jumped 6.3 percentage points to
52.9%. Neutral sentiment was last higher on April 12, 1990 (56.0%). Neutral
sentiment has now been above 40% for 12 consecutive weeks and above its
historical average of 31% for 17 consecutive weeks, as well as for 69 out of
the past 73 weeks. As a contrarian indicator the current AAII reading points to
a continued short-term bounce toward the market highs.
The questions posed in an article published in the Reformed Broker is has the market corrected through time, rather than through price, enough to spark the next bull leg higher? Since
the AAII Sentiment Survey started in June 1987, a neutral sentiment reading
above 50% has only been recorded 28 times. Only six of those readings were
recorded after 1989 (January 1991, July 1991, August 1994, February 2003,
December 2015 and this week). The remaining 22 readings are all from the
approximate two-year span of December 1987 through October 1989. On average,
the S&P 500's 26- and 52-week returns following such occurrences were 8.4%
and 20.5%, respectively. Even rarer is having bullish sentiment below 20% and
neutral sentiment above 50% on the same week. This week is just the sixth time
such a combination has happened. It previously occurred four times in 1988 and
once in 1989. On average, the S&P 500's 26- and 52-week returns following
those five occurrences were 11.2% and 25.7%, respectively.
By Gregory Clay
Investment Strategist
Click here to
gregoryclay@nellaadvisors.com
P.S. click on http://www.theoptionplayer.com/
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