AAII Survey ® of Individual Investor Sentiment

Survey Says!

Read my latest AAII Sentiment Survey analysis here (scroll down a bit in each weekly blog article): Survey Says!

These are archival comments I made in the past (see link above for current remarks since June 2015).

6-04-2015 AAII Survey Says!: Investors are STILL Highly Neutral

This week the AAII.com sentiment is Bulls 27.3%, Neutrals 48% and Bears 24.6% with a Bull-Bear Spread of +2.7%. The high neutral reading is the important number and continues to be Bullish for the U.S. market over the next 6 months as discussed below (see prior entry below).

Stay long is my opinion. We may ease back a bit, but you don't want to be caught leaning the wrong way to any great extent. Instead, be willing to add on pullbacks and then take some off as we move higher. That is what I'm doing and you must decide if you are comfortable with that strategy. Increasing exposure on down swings in the market is counter-intuitive, but very profitable when the market is in Bull mode based on the long term trend.

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

Reference: AAII Data AAII Homepage

4-09-2015 AAII Survey Says!: Investors are Highly Neutral and That Means?...

Charles Rotblut points out in an AAII.com article ( AAII Article ) that high neutral readings are among the most predictive readings of sentiment.

The median gain after a high neutral reading (47.20% today) is 8.6% with an 83.3% chance of the reading being "wrong." That is, when investors feel the market will go sideways for the subsequent 6 months, they are very often wrong. The market tends to go up substantially. In the study, they were right only 10/60 times. This means the odds are with the Bulls from the standpoint of sentiment, but remember it's just one parameter we follow (there are many others!).

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

11-06-2014 AAII Survey Says!: Too Many Bulls?

Too many for a definite rally anyway. There are exceptions though. I am not hedging my comments, just indicating that the indicator is not ever perfect. See my retweet of an AAII chart from today. It shows that the market does not always go down at this level of sentiment. More often it does make a slightly higher high and then sells off a bit. This week there were 52.7% Bulls, 32.3% Neutrals, and ONLY 15.1% Bears. The data matches 12-24-2013 fairly closely. After that day there was a marginal new high and then a significant fall from 1849.44 to an intraday low of 1737.92 or a drop of 6.3%, which is usually considered to be a "correction."

Although I favor a pullback from here or from slightly higher back to the 1928-1942 level with a pause around the 50 day mav, now at about 1970, if we continue higher for 3-4 days, we'll likely hit a significant new high before selling off and this is the risk to being even a bit Bearish here. We want to do our best not to reduce our exposure when the market is still rallying. That is the key to keeping up with the averages, and hopefully beating them by trading around our core positions.

This Bullish scenario played out against a spread of 46.9% of Bulls - Bears back on 12-22-2010, with 63.28% Bulls and 16.40% Bears. We are even lower on the Bear side now, but it shows us that while more often sentiment levels like these lead to pullbacks, sometimes they lead to significantly higher highs and then steep declines.

This means if you stay with this market, you will have to sell when the time comes or you'll likely give up everything and a lot more before we hit our next bottom. That's exactly what happened in 2010 to 2011. The 2011 sell-off was big. So based on this scenario, don't be surprised if you see me raise our exp. in the conservative portfolio back to 100% soon OR drop it further. This is a pivot point.

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

10-16-2014 AAII Survey Says!: Investors Still Relatively Positive Despite Fall

This past week the Bull minus Bear percentage spread went from 8.9% to 9.0%. Both Bulls and Bears went up a couple percent. Not much happened, which is somewhat remarkable considering the major increase in volatility. We could reflexively take this as a negative thinking they don't know anything, yet when I looked back at a time of similar (actually higher) volatility back on 8-10-2011, the spread went from -22.7% the prior week BEFORE the huge drop to -11.4%. That said that despite the fact that the market was sitting at the low at the time of the report, individual investors saw value.

So my conclusion is that the lack of an increase in Bears is NOT necessarily a negative here. Follow me on Twitter as I've explained what I'm looking at to determine whether this is a significant low or not. Lows may or may not hold and so far this one shows some signs it may well hold. Stay tuned as things can change. When the market changes, we change.

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

10-05-2014 AAII Survey Says!: We Bottomed for Now

This week (as of late Weds. night) the Bulls were at 35.40%, neutrals at 33.70% and Bears at 30.90%. The spread was 4.5% per AAII.com (link below).

Let's Look at the comparisons we've been considering these past weeks:

1. 12-24-2013: This is a very good match to this past Weds. evening’s data (remember the survey closes on Weds. night, not on the date given for the survey data point, which is odd but true). We were at the equivalent of about 1-29-2014 on Weds night, and have matched what happened back in January after what I consider to be an adequate 3 wave down pattern, which is down, sideways, and down again. That was completed on Thursday, which is why we bought back the low (see Twitter @SunAndStormInv/ or StockTwits @SunAndStorm).

The rest of the data points did not seem to fit:

2. 10-23-2013: We are at the equivalent of 11-20-2013, and the chart looked very different.

3. 7-10-2013: The equivalent time point was 8-14-2013, which was right as a correction was just starting. Not comparable.

4. 1-11-2012: Pattern does not fit. Equivalent day to now in sentiment was 4-04-2012, which preceded a multi-wave decline.

5. 10-27-2010: Previously I said: “Strong rally could start now and run for 2.5 months before a lot of up and down leading into a major wipeout.” That did NOT happen. We went into a minor correction right away (so far unless earnings send us down again into a bigger decline). This data point would give us a current equivalent in sentiment of 11-17-2010, which was associated with a milder correction than we’ve had.

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

To review all the AAII Data go to AAII.com

9-18-2014 Survey Says!: AAII Survey Sentiment Got Bullish This Week. How to Trade It. How to Invest:

Note that the numbers 1-5 refer to the scenarios from the prior post below this one. You might want to open up two screens side by side as you go through each one.

1. 12-24-2013: Pattern picks up to current numbers from 1-08-2014: Up and down a bit, then correction (as in post just below).

2. 10-23-2013: From 11-27-13: Up and down to 50 day moving average test. Rally and then complete wipe out of all the gains and more.

3. 7-10-2013: Pattern does not fit now, but there’s a catch in the AAII survey data here. It does not fit now, because investors got Bullish in past week, which did not happen immediately following 7-10-2013. The pattern fits again on 9-11-13, which is interesting, because market took off for just 5 days and collapsed in fits to wipe out all but 2 points of the gain at 1343.25 vs. the starting point of 1341.47 on 7-10-13.

4. 1-11-2012: Pattern does not fit again until March when market topped. That’s a bit of a stretch to compare, but could hint that the sentiment pattern is negative.

5. 10-27-2010: Strong rally could start now and run for 2.5 months before a lot of up and down leading into a major wipeout.

CONCLUSION: The negative scenarios from the AAII survey data say we don’t go up much and then correct somewhat and move on up. Most of the scenarios are negative, although none led to a disaster except the POSTIVE one! That makes some sense. If the market continues to rally with continued high sentiment (not too high; just enough; e.g. 36% Bull minus Bear Spread is pushing it), we can have a big rally followed by a massive sell-off as in 2011.

The massive sell-off did not happen immediately. First there were moderate up and down waves and then the big one hit starting in late July. The election cycle could help according to some to keep the rally going until April-May 2015. If you are willing to sit through a 6% correction, you probably don’t need to do anything.

Remember however that this is just one parameter we follow, so don’t bet the farm on “no significant correction more than 6%.” On the other hand, if we go straight up from here with continuing positive sentiment, but not excessively so, we could still see a pretty big rally, even from these levels, followed by a significant sell-off. If you are Bullish, use a stop on new positions, close them if you are wrong, and you should be fine in my opinion. The lost opportunity from being too Bearish could be substantial over the next few months. Remember to follow me on Twitter.com @SunAndStormInv and/or Stocktwits.com @SunAndStorm.

To review all the AAII Data go to AAII.com

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

8-28-2014 Survey Says!: Down 6% vs. Up 13.7% After a Jerk Up and Down:

The Bulls are stomping again! The Bears are fleeing the scene, so the risk is higher now if you plan on buying later than we did. Here are the comparisons for this week's data with a Bull minus Bear % Spread of 32.7% (HIGH) and Bears at 19.20% (LOW) per AAII.com. The market I refer to in the comparisons is the SP500 Index.

1. 12-24-2013: 36.5% Spread/Bears < 20% - SP500 Index went up slightly and then significant correction of 6.1% to the intraday low of the down wave.

2. 10-23-2013: 31.6% Spread/Bears < 20% - Up slightly, then a give back to about flat, followed by significant rally and correction into Feb. from new high to level just below the level of 10-23 (starting point).

3. 7-10-2013: 30.6% Spread/Bears < 20% - Rally to a new high (starting BELOW not above a significant high) followed by a complete give back of the gains and a bit more. Then a new high, another wipe out and a strong successful rally in October. This one is clearly the closest in terms of the time frame, though we're entering the Sept. and October period which can be even more volatile.

4. 1-11-2012: 32% Spread/Bears < 20% - Was the 2nd week above 30%. Looks quite similar to today with a new breakout to a fresh new high. Market backtested very minimally and then had a strong rally into April followed by a correction that took away all the gains.

5. 10-27-2010: 30.5% Spread/Bears 21.60% - Aborted rally followed that gave back the initial gains and then a strong rally of 13.7% into Feb. 2011 and then a pullback that did NOT take away all the gains (eyeballing about 60% of gains given back followed by another rally though).

Bears being below 20% is a negative in the data this week. You see that there is a range of possibilities from the sentiment standpoint ranging from a 6.1% correction for the 12-24-2013 data point to the strong rally for the 1-11-2012 data of 10.1%. Of course, you had to trade out at the April 2nd, 2012 high or you would have given back all the gains. Another strong and long rally followed that, so buying and holding would have worked even with the giveback of the 10% gain. This is a bit misleading in the sense that in a Bull market, you always want to be buying the lows.

The harder question is when you decide a Bull has turned into a Bear. Typically that is correlated with the onset of recession, which does not seem to be in the cards for the U.S. this year.

CONCLUSION: From the standpoint of the sentiment data alone, there is a possibility of a correction of about 5-6% but the risk of missing out on a significant rally. The immediate gains from here could be at risk, so it's not perhaps the best buying point. The Bullish case would be the 10-27-2010 pattern leading to a quick burst and giveback to flat followed by eventual 13.7% gains from the data point. This means the comparative downside risk might be fairly limited with possibly greater upside in the coming months. A 5-6% correction followed by a strong rally starting in October would satisfy the convicted Bulls.

Remember as I like to stress, this is just ONE parameter to consider in deciding whether to invest at this point in the Bull market we are in.

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

8-24-2014 Survey Says!: Last Week's Prediction Still Valid:

In fact, the numbers are further strengthened by the rise of the spread to 22.5% (Bulls minus Bears) at AAII.com. The two data points that resemble where we are include:

2-19-2014: There were 12 subsequent trading days to the end of the Bull move. Then the gains were mostly given up followed by two more attempts at a new high, one of which did achieve a new high on 4-2-14 that was promptly given up. Then all the gains were given up going back to 2-19 and a bit more in fact. Note that the market attempted to suck in a few more Bulls in this overall pattern.

9-11-2013: There were only 5 more trading days to the end of the move. After that high, the market returned to the current long term up channel, falling below the 9-11 level. Of course, in terms of the time of year, this match is closest.

Realize that this is just one parameter that we follow in trading and investing. For more: Understanding the Markets This Week

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

To review all the AAII Data go to AAII.com

8-14-2014 Survey Says!: The Next Gains May Be Fleeting:

I looked for similar data points, where the charts and sentiment match up reasonably well. The AAII Survey of Individual Investor Sentiment for data collection ending on:

9-04-13: Market rallied and gave back the gains completely. Then rallied again.

2-12-2014: SAME AS 9-04-13!

4-23-2014: Market went down just a bit and then went up and down in a narrow range sideways and then rallied strongly. On the latest pullback, we tested the TOP of the range of the sideways move in end April-May.

CONCLUSION: The AAII Survey of individual investor sentiment says that the risk of losing a lot at this point in the rising Bull minus Bear % spread is low, but any gains we see are likely to be wiped out. If you are not trading, you are collecting dividends at best and waiting for the next couple of months to pass, which by the way, can take us into September to October, which are renowned for pullbacks. Sentiment says to sell into further strength and get back in at the Sept or October low to come vs. just sitting there, which would have worked in April. Remember that sentiment is just one thing we look at, so don’t bet the farm on a single parameter of assessing the market.

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

Analysis from the past below:

12-21-2012: The Weds evening AAII data show that Bulls are at 46.40% from 43.23% vs. the prior week and Bears are at 24.80% vs. 30.08% last week. The Bull-Bear spread (Bull % - Bear %) is up to 21.6% from 13.2%.

These data most closely resemble last summer's series of data which led to a small decline after the 8-23-2012 spread of 16.1% and then a big rally followed by another decline. Traders did well buying back then rather than selling. I believe the same will be true this time and in this weekend's free newsletter I'll spell out the chart pattern I expect going into the New Year, so be sure to sign up via the link to the upper right.

10-14-2012: The most recent AAII data from 10-10-2012 show the Bulls dropping about 3 points to 30.58 and the Bears rising over 5 points to 38.85%. This was a significant drop in the Bull-Bear spread which fell to -8.3%. The AAII survey is of more use to us this week.

Now there is plenty of room for Bulls to keep fleeing and turning into Bears, so the stats now favor the Bears in my view. There may only be one more move down if the Bulls have anything to chew on, but I suspect the spread can fall to the -22.4% level achieved on 5-17-2012 before the ultimate low on 6-4-2012 in the SP500 Index.

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

10-03-2012: Last week's AAII Survey® changed nothing. Investor sentiment has not really budged since 8-30-2012, stuck at a Bull-Bear Spread (subtract Bears from Bulls for the spread) of just -0.4% last week. In fact according to AAII, the number of Bears has crept up slightly to 36.46% last week vs. Bulls of 36.10%. On Sept. 30th the numbers were Bulls 34.72% and Bears 32.64%, so there has been very little change other than the Bear creep UP.

Guess what? That is bullish for stocks. If skepticism is rising while the market is rising, the market can continue up. The problem comes when bullishness gets out of hand as the market rises. Now it is also true that AAII Survey® sentiment did NOT predict the latest pullback, but slight pullbacks don't convince anyone to change his/her opinion. The BIG moves change opinions. Sentiment has stayed put because volatilty has been so low. In conclusion, sentiment continues to be more supportive of the Bulls than the Bears.

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

If you "liked" what you read above on the AAII Survey, could you please "Like" and/or ReTweet the page below? I would appreciate it!

7-09-2012: This week (survey ends Weds. night at midnight CT) the Bears in the AAII survey were at 33.33% and the Bulls were at 32.64% for a Bull-Bear spread of -0.7%. The spread has collapsed this time from a peak of -15.7% just last week. That peak was not high enough, which means the market did not go low enough to retest the prior lows fully.

With mediocre to bad earnings coming up, watch the reaction to GOOD earnings. If the reaction is negative, it will confirm the further market timing retest of the prior lows. See the SP500 Index chart from this week on the SP500 tracking page (blue bar to left).

The targets for this SP500 Index drop (see "Tracker" chart) will either be the red up trend line or the 6-25-2012 low of 1309.27 in my opinion.

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

If you "liked" what you read above on the AAII Survey, could you please "Like" and/or ReTweet the page above? I would appreciate it!

06-15-2012: This week Bears in the AAII survey were 35.79% while the Bulls were at 34.04,fairly matched, the rest going to the neutrals. (06-13-2012 survey that closes to investor responses on 6-13 and was reported on 6-14 by AAII)

The pattern is very similar to that of last fall. We are VERY close to the October 13th level of sentiment. What this means is that we could redo last year and go UP through resistance today or Monday after the Greek elections and then fail as we did last year only to fall below the breakout, but above the prior low.

November 25th marked that retest low last year. Then we jerked back up in steps with steps back. I would guess that the same thing could be traced out this year, at first with a rally brought on by the relief that the BIG EVENT (collapse of Europe) did not occur and then a failure to simply make us all tons of money quickly with a retest below the 1335.52 intraday high on 6-11-2012 that marks the current potential breakout point.

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

05-07-2012: This week (05-02-2012 survey that closes to investor responses on 5-2 and is reported on 5-3 by AAII) Bears in the AAII survey were 28.47% while the Bulls were at 35.40 (up considerably from prior week and much too fast), the rest going to the neutrals.

The data points closest to the recent data sets are the 2-3-2010 and 3-16-2011 surveys. These points match the 4-11-2012 data set just a couple of weeks ago. From the 2-3-2010 point on, there was an additional sharp but temporary drop in the SP500 Index and then a rally back. BUT all the gains were given up into the fall to the June 2010 low.

A similar pattern in AAII survey sentiment and trading was seen in 2011. The bottom was on 3-16-2011 in the SP500 Index and then there was a rally up to the end of April and then they went away in May with major corrective lows to follow in the steep August to October correction last year.

So now we could be close to a temporary low and see a rally back followed by a further sell-off if this pattern repeats itself. That said, the sharp rise in the % of Bulls this past week is NEGATIVE. I would prefer and favor that the market will retest the April lows again first, perhaps swooning below that support for a day or two to shake out the weak hands and kill off some aggressive Bears who attempt to reshort there. Make sure you get my free weekly newsletter (sign-up to upper right) as I'll update sentiment there in this next weekend's edition.

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

If you "liked" what you read above on the AAII Survey, could you please "Like" and/or ReTweet the page above? I would appreciate it!

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.

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.

You must be willing to take a SMALL LOSS to avoid large losses.  That is something you will learn by reading more on this site, including the "Buying Checklist (see button on blue bar to upper left)."  It's a must read for most investors.   My very reasonably priced newsletter may help you identify the correct exit points.  That is what I do by providing DAILY market updates on 35 different indices.

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