New monthly AAII Portfolio Allocation Indicator is Neutral (average percentage of stocks in AAII investor portfolios)

New Indicator: Monthly AAII Portfolio Allocation Survey

Old Indicator: Weekly AAII Stock Market Sentiment Survey

Note: The old indicator, AAII Sentiment, was based on a weekly AAII investor survey which I have followed since 2005. That survey asked investors if they were bullish, bearish or neutral on the stock market. It worked well as one of my seven stock market timing indicators from 2005 through 2021. But It has been far too bullish in 2022.

I have decided to use an alternative stock market sentiment indicator -- the monthly AAII investor portfolio allocation survey. That survey reveals AAII investors are much more bullish with their own investments, than they are based their opinions on the stock market (% bullish). 

This new indicator is also a contrary sentiment indicator. We are bearish when AAII investors are unusually bullish, and bullish when AAII investors are unusually bearish. 

I am currently studying historical data since 1987 to determine exactly how to interpret this survey.  

I will have those details for the October 2022 numbers.  The latest (September 2022) numbers are close to the long-term average, which I interpret as Neutral.

The stock portfolios of these AAII investors in September had stock and stock mutual fund allocations of 63.4%. Although at a two-year low, the percentage of stocks and stock funds remained above the historical average of 61.5% for the 28th consecutive month. Allocations to stocks and stock funds were last lower in November 2020 (63.2%).

Being near the 61.5% average, I would call 63.4% "Neutral".  Based on the percentage of stocks claimed in their portfolios, AAII investors are nowhere near their bearish sentiment at market bottoms in the past -- with roughly 40% allocated to stocks at the 1990, 2002, and 2009 stock market lows.  Far below the current 63.4%.

Source of data above:

September AAII Asset Allocation Survey: Equity Exposure Modestly Declines | AAII

...... Economic Logic: AAII Sentiment -- another way to look at AAII data (el2017.blogspot.com)

NOTE:  I will continue showing the old weekly AAII Sentiment Survey indicator (below) for the remainder of this year.  

Perhaps it will start working well again.  

It could be useful as a leading indicator of the monthly AAII Portfolio Allocation Survey (aka "AAII Portfolio Allocation))

It may still be useful when bullish sentiment is extremely low.  

Historically low AAII sentiment in 2022 has gone lower than in the 17 years I've followed these data, since 2005.  As a result, this indicator has become difficult to interpret. When interpreted based on averages from 2005 through 2021, this indicator has been too bullish in 2022, failing for the first time, (while my seven EL Indicator Total, which included AAII Sentiment. hasd been correctly bearish.

Source of Data Below:     https://www.aaii.com/sentimentsurvey/sent_results

NOTE: My SEVEN  STOCK  MARKET  TIMING  INDICATORS were:

BEARISH on September 30, 2022

...... Economic Logic: The ECONOMIC LOGIC stock market timing indicators remain Bearish at -4 (range is from -7 to +7) (el2017.blogspot.com)

BEARISH on August 21, 2022

...... Economic Logic: The ECONOMIC LOGIC stock market timing indicators remain Bearish at -4 1/2 (range from -7 to +7) (el2017.blogspot.com)

BEARISH on July 15, 2022

...... Economic Logic: The ECONOMIC LOGIC stock market timing indicators remain Bearish at -4 (range from -7 to +7) (el2017.blogspot.com)

 

My average of seven market timing indicators, predicting stock prices over the next 3 to 6 months, is more useful than this single short term sentiment indicator.

AAII Sentiment Indicator  Analysis:

AAII Sentiment is a contrary opinion indicator of small investor market sentiment. When these less sophisticated investors are unusually bullish, it's time for traders to sell.  When very few are bullish, it's time for traders to buy. ... This is the only short term market timing indicator of the seven market timing indicators I follow.

This short term AAII Sentiment indicator 4 week average has been bullish or moderately bullish all year, as interpreted based on past years, But unlike in past years, there was no market rebound for a long time, until after readings of an unusually low 25% bullish (very bullish as a contrary opinion) for the week ending June 15, 2022, and even lower at 23.5% bullish for the week ending 6/22/22. The bullish percentage of investors in 2022 reached deceptive LOWER troughs than in the past 16 years, making the indicator hard to interpret.

 

AAII Sentiment does NOT tell us if we are in a bull or bear market. 

It only 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. 

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. It is based on my interpretation of 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 October 13, 2022: 

= BULLISH

26.7% of AAII Investors were bullish 

(was 30.4% bullish =  BULLISH last week) 

 

Four  Week  Moving  Average: 

= BULLISH

25.9% of AAII Investors were bullish (unusually low)

(was 28.5% bullish = BULLISH last week)

 

 

Recommended Portfolio Cash

percentage for short term traders: 

 = 0%

(was 0% cash last week)

 

 

Data for the week ending 10/13/22: 

20.4% were Bullish  --  (under 20% is unusually low)
   (was 23.9% last week)

23.7% were Neutral
    (was 21.3%)

55,9% were Bearish  --  (over 50% is unusually high)

    (was 54.8%)

 

 

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