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Wednesday, June 17, 2015

Daily update 6/17 AAII buy signal?

Interesting day.  There was both significant buying and selling going on.

This morning SPY stuck its head above the high of the 6/12 big gap down day.  It then sold off rather significantly before the FED announcement.  After the FED announcement SPY ran up to a new intraday high and closed that gap down.  There are no more gaps left above.  SPX briefly rose above both the 18 and 50 SMAs, but dropped back below at the close.  The breadth was just slightly positive.  New highs increased to 93 while new lows held steady at 77.  Those stats remain a negative. 

The futures were above 100 and below the 200 SMAs today, but settled in between.  This market continues to try not to go anywhere.  I guess one day it will break loose.

Greece may be back in the news tomorrow which could impact markets.  You can't predict this stuff.  Since we don't have any trend to work with the market is just floundering around.  However, it looks like we are getting close to a precipice.  If the bulls don't get going we are likely to do some cliff diving.  SPX is stuck between the 18 and 50 DMAs above and the 100 below.  Until we break out there is not much more to say.

This is an interesting article on the AAII survey.  Indicator of the Week: Why Extreme AAII Pessimism Marks a Buying Opportunity  Here is a table of results since 1990.

The results look pretty good don't they.  Only one time was the market down 6 months later.  Another time it was basically flat.  What this table doesn't tell you was what happened before the low reading in the survey.  The 8/21/1992 was the only time it happened when SPX was less then 5% off its high.  It was only 2.6% then which is very similar to now.  The only other instance where SPX was still above the 200 DMA when the signal happened was 5/14/1993.  That pullback was about 5%.  The 6 month returns from those two instances were only 4-5%.  Of all the instances those are closest to the current conditions based on SPX.  Just keep in mind that 1990 had a recession and a 17% sell off in SPX.  We have not had even a 10% correction since 2011.  We have not had a recession since 2009.  In 1992 and 1993 nominal GDP was over 5% instead of the 3.5% we have had in this recovery.  The overall conditions are not very close to any of these prior instances.  The 2/9/1990 and 1/18/2008 instances were actually pretty good calls by the AAII members as both years contained a recession and sizable sell offs in SPX.  At best the 6 month returns from here will probably be muted. It is also possible the AAII people end up making a good call and we end up lower then we are now later in the year.  I don't know if this matters at all, but valuation is much higher now then in any other instance.  I also find it interesting that despite a near 50% sell off in SPX there was no instance of this kind of bearishness in the 2000-2002 bear market until after it was over.   Seems odd.  No fear until too late.

I don't know how this might affect where we are 6 months from now, but this story is making the rounds.  If enough people see it and believe it is signaling a buying op we could see some more upside in the short term.


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