The AAII Reports Bearish End
Indicator of the Week

AAII Survey: Bulls Take Over!

The Bull Market Continues Its Stampede!

by Ian Harvey

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August 13, 2012

Introduction

One of the sentiment indicators to follow is the weekly survey conducted by the American Association of Individual Investors (AAII). In this poll, the survey asks its membership where the market is heading in the next six months – which is discussed each week in the articles “The Past Week Stock Market Results”. Prior to last week's report, the bears had outnumbered the bulls in this survey for 13 straight weeks. The poll can be very volatile, so it's quite extraordinary that it stayed bearish for about three straight months.

This week, a study is undertaken to determine what has happened in the past following similarly lengthy streaks of bearish in the weekly AAII survey.

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When the Bearish Outlook Ends!

It appears that it's quite rare to see such long streaks of bearishness. By observing the data on the poll since 1987, this is just the sixth time that the bears have outnumbered the bulls for 13 straight weeks. Below is a table showing other streaks of at least 13 weeks of bears outpacing the bulls, along with the Standard & Poor's 500 Index (SPX) returns over different time frames out to about six months (26 weeks).

In the summary, you'll see the average of the returns after an occurrence as compared to the typical SPX returns over those time frames. Checking out the data, the returns after one of these signals outperforms what the market typically does -- especially at the 8-week and 13-week time frames (approximately two and three months, respectively).


Conclusion

If the poll is indicating that investors are moving from a bearish outlook to a bullish outlook, then it may be quite a buying opportunity. That's because the 13 weeks of bearishness is a sign that investors may have been keeping money on the sidelines -- and if they're turning bullish, that money could now begin flowing into the market to drive stocks higher. Make sure you're in this market before the rest of the crowd moves in.

Finally, below are a couple of SPX charts marking the signal dates in the table from above.

Further Articles Relating to the Week Ahead

1. The Week Ahead in the Stock Market - August 13, 2012

2. The Economy and Earnings in the Week Ahead – August 13, 2012

3. The Past Week Stock Market Results – August 13, 2012

4. The Major ETFs in the Week Ahead – August 13, 2012


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