The Bullish S&P Signal Not Seen in 5 Years

Tidal waves of American Association of Individual Investors (AAII) optimism have preceded huge S&P 500 Index (SPX) rallies in the past

by Andrea Kramer

Published on Mar 11, 2016 at 3:18 PM

In mid-January, the S&P 500 Index (SPX) slipped back into correction territory, small-caps officially entered a bear market, and the number of self-proclaimed bulls hit its lowest point in more than a decade, per the American Association of Individual Investors (AAII) survey. Since then, however, the bulls have re-emerged with a vengeance -- and these tidal waves of optimism have historically preceded major S&P rallies.

Specifically, the number of self-identified AAII bulls has surged nearly 109% during the past nine weeks. Since 1987, this is just the 19th occurrence where the number of bulls has more than doubled in such a short span, according to Schaeffer's Quantitative Analyst Chris Prybal. The last time this happened was October 2010, which preceded a one-year (252-day) rally of 66.6% for the S&P 500 Index.

What's more, the SPX has averaged a one-year return of 49.1% following these signals, and has been positive a whopping 83% of the time. For comparison, SPX's average one-year return is 8.6% since 1987, with 77% positive. In fact, the last time the S&P was negative one year after this signal was 2006, just before the dawn of the financial crisis -- and the index was only 0.3% lower one year out.

Further, across all time frames that we measured, the S&P has outperformed following a massive rush of AAII bulls. For instance, 10 days after a signal, the index has averaged a gain of 1.6%, and has been positive 72% of the time. The SPX's anytime 10-day return since 1987 is 0.3%, on average, with just 59% positive. This, combined with the fact that March and April are historically good times to be long, could suggest even more upside ahead for stocks.


160311AAII1

160311AAII2




A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.
Patent Lawsuit Loss Sends AMRN Stock Spiraling
Amarin just lost a major U.S. patent lawsuit for its heart drug Vascepa
RH Stock Sinks Despite Earnings Beat
J.P. Morgan Securities and Cowen and Company cut their price targets
The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.