The Stock Market Indicator Nearing Uncharted Waters

The percentage of bullish respondents in the American Association of Individual Investors (AAII) survey remains below 50%

Jan 26, 2017 at 2:55 PM
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The weekly American Association of Individual Investors (AAII) survey just logged its 108th week in which the percentage of bullish respondents -- those with an optimistic six-month outlook for the stock market -- is below 50%. This streak began on Jan. 8, 2015, and is just two weeks shy of the record 110-week streak of AAII bulls being below 50% that lasted from Jan. 22, 1993, through Feb. 23, 1995, according to Schaeffer's Quantitative Analyst Chris Prybal. In fact, this record streak also occurred when the S&P 500 Index (SPX) was lingering near record highs.

And while the sample size is extremely small, Prybal notes that when the previous streak ended, the S&P 500 struggled in the ensuing two-week period -- possibly as buying power was depleted -- before resuming its longer-term uptrend across all subsequent time frames going out 12 months. What's more, the consecutive and consistent weekly decline out of this AAII group is interesting. Specifically, the percentage of bulls declined 28% in the past two weeks and 31% in the past month. This represents the biggest declines in bullish sentiment since May 2016!

AAII bulls_bears_spx

This week, the AAII bulls fell 5.4 percentage points to 31.6% -- well below the historical average of 38.4%. As a point of comparison, those respondents that identify as neutral increased 4.6 percentage points to 34.9%, above the historical average of 31.3%. Meanwhile, the percentage of bearish respondents rose to 33.5% from 32.7% in the week prior, higher than the 30.3% historical average.

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