Allow me to point out a bullish indicator that’s being flat out ignored by the media and investors: Investor sentiment.
The chart below plots the percentage of bullish investors surveyed by the American Association for Individual Investors (AAII) against the S&P 500 (^GSPC).
The percentage of bullish investors dropped to 29.60, one of the lowest readings of the year.
This isn’t a historical extreme, but it’s noteworthy considering that the S&P 500 (SPY) is yet at another all-time high.
The dashed lines show what happened the last several times investors felt as gloomy as this week. Eight out of nine times the S&P 500 rallied.
The Profit Radar Report has been monitoring the AAII poll and observed back on May 14 that: “The percentage of AAII bears is down to 28.34% and various media outlets have boldly gone on record predicting a crash or severe correction. Today the put/call ratio is at 0.72, a level that’s indicative of a low more than a top.”
What makes the AAII crowd pessimism unique is how it contradicts other, more bullish sentiment polls.
The bottom graph on the chart shows the difference between AAII bulls and bullish advisors surveyed by Investors Intelligence (II). 56.5% of advisors are currently bullish.
The spread between AAII and II bulls is one of the largest and most persistent in the history of the two surveys.
In yesterday’s article “The Long-Awaited S&P 500 Correction Already Happened” I dared to suggest that the expected S&P 500 correction already happened.
The passionate responses on Yahoo’s comment board confirmed the AAII poll. Here are a few:
“The big one hasn’t hit yet”
“Wow they baked a correction hidden in an up turn and we are suppose to buy it. Soon you will see what the real thing is and then look at this article.”
“What a load of nonsense”
Every investor should always look at all the facts. Fact is, bearish sentiment is too pronounced to ignore.
A correction, which is overdue and would be healthy, may come any day, but data points like this caution that it may not happen yet.
Bottom line, as long as support holds, the trend is up. The July 8 Profit Radar Report identified key support, which has been tested five times since (and held everytime).
This key support, and why it is important, is revealed here:
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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