May 29th, 2012

Perhaps Investor Sentiment Is Still Sufficiently Bearish

You know why you feel frustrated?  It’s because the market for the past year has remained almost exactly level.  Today’s close at 1332.42 is almost literally at the same level as the 1331.10 close on May 27, 2011.  And, interestingly enough, reading the post I wrote that day entitled “May 2011 = August 2010” feels like stepping into one of those carnival perpetual mirrors, where all you see looking at one is another mirror encapsulating another mirror into perpetuity:

“the current game plan (i.e., view of the market’s near term projection) goes back to January 20 in a piece called “Pivot Points and Sell-Fulfilling Prophesies”….[in which] I wrote: ‘the market is edging ever closer to a zone (1300-1350) that has seen six pivots since 1999. As a matter of fact, the last pivot was in 2008 … here we are, four months after that post and, as expected, the market stalled out just about where I thought it might (today’s close was 1325.69). We’re back to the original question: Where to from here?”

Here we are two years after that original 2010 post and the market is again struggling to convincingly cross above the 1350-1360 zone:

I had hoped the market’s course between February and May 2011 would be similar to the May-August 2010 path but. “…. wouldn’t rule out the possibility that this one would be followed by a rise to at least 1550”, or 15-20% above that day’s close.  The conclusion was based on a recent AAII Individual Investor Sentiment Survey indicating that the last time AAII members were as negative as they were (25.6) was in August 2010.

The results of last week’s AAII Individual Investor Sentiment were that 38.7% investors were still bearish.  Not as strong a contra-indicator as the 25.6% last year at this time but also not that the majority were ragingly bullish.  Consequently, I remain optimistic and hope that the market will cross 1360 and, eventually, 1390 this year and deliver the long-awaited significant tell that marks the launch of the assault on the 1567 all-time high made nearly five years ago.

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