Tuesday, May 24, 2011
lots of bears
Here are two reasons why I think that the S&P 500 will soon begin a move to 1400 and above.
The top chart shows the weekly reading and the five week moving average of the AAII survey of investor sentiment. The data are the weekly ratios of bears to bears plus bulls. The higher the number the more bearish is investor sentiment. You can see on the chart that both the weekly reading and the five week moving average are at their highest levels since August of 2010. This is remarkable because the S&P itself is only about 5% off of its bull market high thus far.
The lower chart is even more striking. It shows the 10 day moving average of the CBOE equity put-call ratio (green line). This moving average is actually higher than it was at the July 2010 low which ended a 17% drop. A lot of people are betting on a continuing decline here!
I think this is evidence of a high level of bearish sentiment in this market. I don't think the bears' wishes will be fulfilled. The S&P will soon start a move to 1400 and above.