AAII is the stock market’s best sentiment gauge. Investors are extremely Neutral right now because the stock market has been swinging back and forth over the past few weeks.
This is the first time the Neutral % has exceeded 45% since May 2016. Here are the historical cases in which AAII Neutral exceeded 45% for the first time in 1 year (52 weeks).
- July 19, 1991
- June 9, 1994
- October 23, 1997
- August 5, 1999
- February 6, 2003
- April 9, 2015
Here’s what happened next to the S&P 500.
July 19, 1991
June 9, 1994
October 23, 1997
August 5, 1999
February 6, 2003
April 9, 2015
This was 1 month before the S&P’s 15.1% “significant correction” began. The Medium-Long Term Model predicted a significant correction around this time.
AAII Neutral exceeding 45% is a random sign for the stock market’s short term performance. It is neither a short term bullish sign nor a short term bearish sign for the stock market. Sometimes this signal comes out when the market is rallying and sometimes this signal comes out when the market is in the middle of a “small correction”.
However, this is a medium-long term bullish sign for stocks. The S&P 500 trended higher over the next 6-12 months in 5 of these 6 historical cases.