Short term indicator AAII Sentiment is Very Bullish (but my seven market timing indicator average remains Bearish) -- 0% cash recommended for traders

 Data Source:

 https://www.aaii.com/sentimentsurvey/sent_results

 

NOTE:

My seven STOCK  MARKET  TIMING  INDICATORS were:

 

BEARISH on June 12, 2022

https://el2017.blogspot.com/2022/06/the-economic-logic-stock-market-timing.html

 

 BEARISH on May 1, 2022

https://el2017.blogspot.com/2022/05/as-i-warned-on-april-17-economic-logic.html

 

MODERATELY  BEARISH on April 17, 2022:

https://el2017.blogspot.com/2022/04/economic-logic-stock-market-timing.html

 

NEUTRAL on March 11, 2022:

https://el2017.blogspot.com/2022/03/economic-logic-stock-market-timing.html   

 

MODERATELY  BEARISH on February 8, 2022:

https://el2017.blogspot.com/2022/02/economic-logic-stock-market-timing.html

 

My average of seven useful indicators works better than any one market timing indicator, especially this one in 2022 ! 

 

Indicator  Analysis:

This is an indicator of small investor market sentiment. When these less sophisticated investors get unusually bullish, it's time for traders to sell. When very few are bullish, it's time for traders to buy. It is a contrary opinion indicator. I interpret the percentage bullish based on observations from 2005 through 2021. That methodology does not seem to be working this year.

AAII Sentiment replaced my prior short term indicator, the Put / Call Ratio, that I had followed from 1977 through 2005 in my for-profit newsletter ECONOMIC LOGIC. 

 

I started this blog in 2008, mainly  for charts that were easier to read online, to supplement the newsletters. 

I stopped publishing ECONOMIC LOGIC in early 2000 when my sideline hobby, "The Honest Global Warming Chart Blog",  suddenly became much more popular. It has had over 322,000 page views so far.

 

The P/C Ratio had stopped working by 2005 when options had too many other uses besides speculation. People more often sold calls to get extra income on their stock portfolios, and puts were more often used to hedge investments. 

 

AAII Sentiment may have have stopped working in 2022. This is the only short term market timing indicator I track, of the seven market timing indicators I follow. All seven indicators were -4 Bearish with a range of -7 (all 7 Bearish) to +7 (all 7 Bullish). If this AAII Sentiment indicator had been Bearish, instead of Bullish, the -4 Bearish Total on June 12, 2022 would have been a -6 Bearish Total, for the same conclusion -- Bearish on stocks for at least the next few months, assuming the Indicator Total is not likely to change much in a month or two, based on past experience ... but a faster change of the Total is possible.

This short term AAII Sentiment indicator has been bullish for 19 weeks in a row, as interpreted based on past experience, indicating that the stock market is oversold. But unlike in past years, so far there was no market rebound. The last time this indicator was so bullish was from May through August 2020. 

With this indicator, you can look back after a year is over, and see that the lowest AAII bullish levels were good buying points for traders, and the highest AAII bullish levels were good selling points for traders.  I have determined high and low percentages of bullish small AAII investors real time by historical precedent -- I've been tracking these data weekly since 2005.  But there's no reason the bullish percentage of investors in 2022 can not reach LOWER troughs than in past years. So far 2022 appears to be such as year. With the high inflation, high energy prices, low consumer comfidence and low confidence in the President's party, the troughs of bullish AAII investors seem to be lower than in the past 16 years. 

 

Looking back after 2022 is over, it's possible the AAII indicator worked again for short term traders. It just didn't work based on the old standards -- observations from 2005 through 2021. But ... I'm still looking for a replacement stock market sentiment short term indicator anyway. Fortunately, I use seven market timing indicators because I expect at least one to stop working in a given year.

 

AAII Sentiment does NOT tell us if we are in a bull market or a bear market. It tells us if stocks are "overbought" or "oversold".  It only tells us if buying stocks today is a good idea for the next few weeks. This weekly indicator can change a lot in a few weeks. AAII Sentiment is a contrary opinion sentiment indicator, so it is bullish when AAII individual investors are bearish, and vice versa, recommending from 0% to 100% cash in a common stock portfolio. Based on market sentiment from an anonymous online poll of members of the American Association of Individual Investors (AAII).  The four-week moving average has much less volatility than weekly data, but active stock traders should prefer the weekly data.

 

Week Ending on June 15, 2022: 

= BULLISH

25.0% of AAII Investors were bullish 

(was 30.8% bullish = BULLISH last week) 

 

Four  Week  Moving  Average: 

= BULLISH

32.3% of AAII Investors were bullish

(was 34.8% bullish = BULLISH last week)

 

 

Recommended Portfolio Cash

percentage for short term traders: 

 = 0%

(was 0% cash last week)

 

 

Data for the week ending 6/15/22: 

19.4% were Bullish (under 20% is unusually low)
   (was 21.0% last week)

22.2% were Neutral  (under 25% is unusually low)
    (was 32.1%)

58.3% were Bearish (over 50% is unusually high)

    (was 46.9%)

 

 

AAII  Indicator  Analysis:

    ( over 80% is Bearish )

( 71% to 80% is Moderately Bearish )

( 50% to 70% is Neutral )

( 40% to 49% is Moderately Bullish ) 

  ( under 40% is Bullish