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Strategies & Market Trends : Investor sentiment surveys - a technical indicator
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To: James F. Hopkins who wrote (95)8/13/1997 11:09:00 AM
From: Q.   of 167
 
I was asked on another thread how the sentiment surveys are looking
now, so I'll update them.

I'll list AAII % bulls as well as the average of the four surveys
published by Barrons:

AAII ave Barrons
6/16 49% 58%
6/23 59 63.5 <- peak bullish sentiment
6/30 52 62 <- 2 wk ave AAII > 55%
7/4 45 58
7/11 49 61.5
7/18 54 62.5
7/25 53 62.3
8/1 48 60.2
8/8 49 61

at the May 27 peak before the 1996 correction, these figures were:
5/27/96 51% 54.5%
6/3/96 61 56.8

at the Mar 3 peak of the 1997 correction, they were:
2/24 44% 56%
3/3 63% 61.8%

The sentiment indicators accurately predicted the June 96 and Mar 97
corrections, but apparently it bombed out in a big way in giving
a false prediction of a correction in July 97.

The sell indicator I use is a 2 wk ave AAII > 5%, and this is
based on 10 years of backtesting. Maybe it isn't as useful a
single indicator now as it was from 1987 - early 1997. Maybe 10 years
of backtesting simply isn't enough, because it only caught a handful
of corrections and not every correction is the same. I don't know.

Someone proposed using bull/bear ratio instead of % bulls. I tested
the AAII historical data using Excel's correlation coefficient
function, and I found essentially the same (negative) correlation
coefficient between that ratio and the change in the S&P 500 10 weeks
later as I did for the % bulls by itself. The % bulls and the
bull/bear ratio were equally good, and considerably better than the %
bears.
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