NOTE: Please go to here for the latest installment and scroll to below the first chart… Survey Says!  A Review of the  latest AAII Survey Investor Sentiment Data:

AAII Survey Review

Investor sentiment is interesting today.  Comparison to past similar AAII Survey Bull-Bear spreads yielded two possibilities that arose in reasonably comparable contexts.  Others that did not fit the same chart dynamics were excluded, meaning that if the market was rising from a low and had a similar sentiment reading, I ignored the data point.  I would rather look at sentiment values that occurred in similar chart contexts to today’s.

There were the two data points that fit today’s context of a -13.8% Bull-Bear Spread reasonably well:

5-19-2011 and 5-26-2011, -14.6% and -15.8 Bull-Bear Spread:  I lump these as they were just a week apart.  Obviously this was just last month, so the context is a decline.  The market had declined to date and then declined further to yesterday’s low.  So we could simply slide down another notch.  That would be another 5.4% minimum decline (just repeating the decline from 5-26 to the 6-15-2011 close for the SP500 index).  That is a very crude number obviously.

2-4-2010, -14% Bull-Bear Spread – This is the most promising comparison for the Bulls.  The reading at -14% was associated with a market low around 2-4-2010 and then a strong rally to the April high followed by a loss of all the gains and more to the July low.

If you were nimble and got out near the April 2010 high, you made money (1183.71 (if sold after first big down day)/1063.11 (2-4-2010 close)), namely 11.3%.  On the other hand if you sold in a panic at the July low, you would have lost 3.8%  The decline to the 2-4 low was 7.6% and the decline to yesterday’s close was 7.2%.  This is a pretty good parallel.

CONCLUSION:  Sentiment is at least supportive of a rally from here.   Given this backdrop of sentiment, the key is to follow the trend, regardless of which way the market breaks, up or down.  And since all the gains of the 2010 rally were lost temporarily in the decline that finished in July 2010, you will do better if you are nimble.  There has never been a better time to subscribe to my newsletter.  I update the markets after every market day.  The subscribe button is to the left at the bottom of the blue navigation bar.  Your first two weeks is completely free.

What we do not have this week is any kind of big capitulation in sentiment at a low.  We may not get that however, as February 2010 proved.

If you have not seen the likely targets of this SP500 Index pullback, you can review the video with the chart here: Key Technical Pointers on the Stock Market

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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

© 2011 David B. Durand, M.D. All rights reserved.