12-03-2011: This week (12-01-2011 survey) Bears in the AAII survey were 39.42% while the Bulls were at 33.04, the rest going to the neutrals. That makes the Bull-Bear Spread -6.4%, which means there is still room to run to the upside, but then we can move down again. The spread is the same as it was on 8-25-2011 when the market went up a bit and then cracked back to retest the August low after gyrating up and down.

Another prior similar data point was on May 12th, 2011 which had a spread of -4.7%. At that point the market was retesting a top and corrected from there back to the June low before rallying into July and failing in an even greater way.

The next significant similar data point was on 8-05-2010 with a spread of -8.0%, following which the market pulled back to test the 2010 July low. It actually made a higher low in August and then rallied like mad into the April 2011 high, before selling off in May. Remember that?

CONCLUSION: Sentiment in the context of the current chart suggests that we could either have a brief rally up to the October high followed by a sell-off or we could immediately start selling off. I would set stop losses on your recent gains if you have them rather than trying to guess the market is going to fall. An unabashed Bull could argue ignoring those sentiment numbers that the market may have already done its retest of the summer low and it's onward and upward from here as we saw in 2010 going into April 2011.

Standard Disclaimer: It's your money and your decision as to how you invest it as usual.

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What levels in the SP500 Index would indicate true strength?

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11-12-2011: This week, Bears in the AAII survey were only 24.56, down 5.1% while the Bulls were at 44.7%, up 4.6%, the rest going to the neutrals. That makes the Bull-Bear Spread 20.2%, which is not that big yet. But it is getting there.

The rise of the spread favoring the Bulls to above 20% occurred last fall as well. It was on 9-16-2010. After that bump up in Bullishness, the market acted very well for a long time to come. As I mention in my SP500 Tracking Newsletter (see SP500Tracker (TM) link to the upper left), how we come out of the current technical triangle will show us the way.

At the moment, I'd say the flow of news and the ability of the market to recover back above the summer highs after falling below them along with AAII survey sentiment favor the Bulls at this time. Check out the SP500Tracker (TM)video to find out what the signal will be that will cause cause the market to slip.

10-30-2011: The number of Bears this week in the AAII Survey was 25% and the Bulls 43% for a spread of 18%, so the Bulls have it. I found that there is plenty of room for Bullishness to continue by comparing the current numbers to previous charts. The numbers were almost identical on 9-23-2010 and back then the market rallied for months with the first minor correction occurring weeks later.

Will there be a correction along the way? For sure. Will it take us back to the previous lows. Probably not in the near future, UNLESS Europe blows up again because Italy or Spain become the Greece of the moment. The risk to stock portfolios are the unknown but lurking sovereign debt and European banking stability issues. Watch your stops, but allow for some wiggle room or you will be kicked out of your long positions by the next "Euro Noise." It happened a couple of times during the October rally.

10-13-2011: The number of Bears in the AAII Survey never made it up quite high enough and the number of Bulls never dropped low enough to call the prior low a clear bottom. That does not mean it was not a bottom, but the AAII survey data do not confirm it. It is possible that the survey method of a once a week survey misses the lows in sentiment occasionally. And is it possible that there was a disconnect between American investor sentiment and what was going on in Europe.

Bulls were at 39.8% and Bears were at 36.4% with a spread of 3.4%. This data is as of 10-12-2011. Members vote during the week on what they believe the market will do over the next half year. The last vote was in as of 10-05-2011, which was a strong up day in the market and the prior day had been a major market reversal day. So it is not shocking that if they voted near the end of the week rather than at the beginning, they would be emboldened by the reversal.

CONCLUSION:We cannot be sure that the low in sentiment did not slip through the cracks because of the timing of the survey. The survey may have missed the sentiment bottom that would have occurred on 10-03-2011.

9-29-2011: Here is where the AAII Survey of Individual Investor Sentiment® stands this past week:The results this week are amazing. There are still not enough Bears for a decent bottom. The Bulls this week were at 32.5%, Bears were at 46.8%, and the spread was only 14.3%. We need to get the spread up to about 30 at least to form a bottom in the stock market.

There are almost enough Bears in the AAII Survey, yes, but the number of Bulls is still too high. My guess is that these investors have been hanging out in tech and other places that have not been hit as hard and are showing resiliency. Apple investors for example would wonder whether there is a recession out there. Those in foreign markets have not been as fortunate and no doubt count themselves among the Bears.

CONCLUSION:The optimism of the prior Bull run has not worn off enough to suggest that we've hit bottom. We will not argue with the trend if it shows up fully, but sentiment on its own is not negative enough.

8-29-2011: Here is where the AAII Survey of Individual Investor Sentiment stands this past week:The AAII data this week did NOT reveal a huge number of Bears. Not even close, which is Bearish overall as investors are withdrawing funds at record rates even compared to the March 2009 lows.

There are still too many Bulls and too few Bears in the AAII Survey to say a bottom has been reached. The panicky investors are happy to lock in 15 - 20% losses to avoid 45 - 50% losses. They think this time they’re going to be smart. The odds are against them longer term, because the panicking sellers have little clue as to how or when to rebuy.

The Bulls were at 36.4% and the Bears at 41.0% for a Bull-Bear Spread of -4%.

I examined prior history for similar Bull - Bear spreads, and the data points that seemed best matched to the current charts are highlighted in bold.

8-16-2007: -3% - It was the exact low followed by a big rally before the long term decline. This followed the first steep decline from the July 2007 high.

8-30 and 9-6-2007: -6%, -4% - Early in rally mentioned above. Market went up and down a bit before climbing more steadily to a peak and declining again longer term.

4-3-2008: -3% - Partially into a rally leading into bigger decline.

9-4-2008: -6% - Marked a FAILED retest of support following a shallow summer rally. IT was followed by the massive Sept. to October decline.

11-13-2008: -4% - Market retreated just a bit, which involved a FAILURE TO HOLD A DOUBLE BOTTOM, then rallied and then fell into the last big decline into the March 2009 low. We are much higher than where we were then, but a similar chart pattern could evolve, eventually bringing us to a lower low.

2-12-2009: -6% - The next day the market headed down toward the March 2009 low.

3-26-2009: -3% - Market dropped a bit, not much, and then continued to rally for months. Not at all our position today.

8-20-2009: -6% - Strong rally on up to the January high. Not our position today.

10-08-2009: -6% - Start and stop and resumed rally. Went up, retraced entire move and then rally continued. Not similar to today.

6-2-2010: -4% - Retested the prior May low, rallied up to resistance, failed, and moved to final July 2010 low. This is about where we are.

5-12-2011: -4.7% - Fell to June low.

CONCLUSION: Based on the AAII Survey data, the market is likely to move up for a brief rally to overhead resistance and fail again to retest the current low, possibly then failing and falling through it to land either at the prior summer 2010 lows again or somewhere in between. It could break the double bottom, and then rally before retreating to even lower lows as it did on 11-13-2008. This is my intuitive summation of the above data. Realize that AAII Survey sentiment is just one data point to consider and please continue to follow the content on this site and my blog. The easiest way is to subscribe to my feed on the upper left or check the “Read My Feed” page for the latest posts (which will include links to my blog page too - to anything new I write): Read My Investing Feed Page

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8-11-2011: Here is where the AAII Survey of Individual Investor Sentiment stands this week:

The AAII Survey says that there are 33.40% Bulls, 44.80% Bears, with a spread of -11.4%. Last week the spread was at -22.7% and if you recall, I was looking for a spread increase to the high -20s or low -30s at least. It did not happen.

So I went back in AAII Survey history over the past couple of years and looked for times when there were similar drops in investor sentiment from about -22% down to as low as 4%. Here they are.

6-12-2008: -22% to -13%: Market went up hardly at all and then continued major downtrend. But this was part of a continuing Bear market, not a sharp correction.

6-25-2009: -21% to -7%: We were coming off a major low in 3-2009, so it’s hard to compare, but the market went up a bit, down a bit more but not much and then rallied hard. It was the first pullback in the long uptrend from the 2009 low.

5-27-2010: -21% to -4%: Market sustained a 7.3% loss to the July low after a rally of only 1.3%. The -21% occurred at the end of a sharp sell-off with the Flash Crash in between. Then a small jerk up and a testing and retesting several times of the low. This is most like today’s market. The total correction was 15.6%. This one was 17.9%. Sound familiar?

8-26-2010: -28.7% to -11.4%: Last low before big rally. Was similar in sentiment, although a bottom had been hammered out, whereas this bottom looks more like the first shot at a bottom. We are in May 2010, not August 2010, but it may not matter when you buy stocks if you believe this is an analogous pullback.

6-9-2011: -23.3% to -13.8%: Marked the end of the decline into this past June followed by 4.98% rally and then the current decline to date of 17.2% to yesterday’s close. This correction was only 7.2% however and it was very gradual.

CONCLUSION: Of all the past similar falls in the AAII Survey Bull-Bear spread, this one was most similar to the one in May 2010. The degree and speed of the correction were similar especially when you factor in the Flash Crash day. That shook investor confidence just as it was shaken over the past few weeks. Yes, the current period of decline has seemed even more intense.

We could rally from here and retest the current low at about the same level or drop another 5-10%. Do you know how far down the July 2010 low is from the low reached over the past couple of days (which was on 8-9-2011 with the SP500 Index at 1101.54)? It is 7.2% below that level.

So if we repeat summer 2010, we’ll jerk up and down for a few months and even potentially exceed the prior low by around 7%, and then we’ll recover. A retest is fairly likely, but we cannot say from what level it will occur.

Be careful not to listen to the Bears too much who say the Dow is still going to 4000. I am Bearish when the market looks Bearish, but I don’t stay Bearish, and on the other hand, I don’t stay Bullish. That is the value of what I do. I keep you from getting stuck thinking that “this should happen” or “that should happen.” If it happens, then it should have happened, correct? You can incorporate my thinking into your own decision making. I respect your opinion. I just may have something useful for you to consider while investing.

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Can the Markets Crawl Back?

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Beyond the AAII Survey: What Else is Happening in the Market?

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