{"id":37558,"date":"2013-04-15T02:08:23","date_gmt":"2013-04-15T06:08:23","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37558"},"modified":"2013-04-15T02:08:23","modified_gmt":"2013-04-15T06:08:23","slug":"when-this-indicator-hits-19-stocks-always-rally-and-it-just-did-again","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/15\/when-this-indicator-hits-19-stocks-always-rally-and-it-just-did-again\/","title":{"rendered":"When This Indicator Hits 19, Stocks Always Rally\u2026 And it Just Did Again"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

I know that James Surowiecki achieved “bestsellerdom” in 2004 by telling us that there’s wisdom in crowds. That, collectively, humans make much more informed decisions than individuals.<\/p>\n

What a total crock! (At least when it comes to investing.)<\/p>\n

As Humphrey B. Neill observed, “When everybody thinks alike, everyone is likely to be wrong.”<\/p>\n

And there’s no better proof of this than investor sentiment.<\/p>\n

As I shared in July 2012<\/a>, when bullish sentiment hits extreme lows, stocks almost always rally.<\/p>\n

Well, guess what? Bullish sentiment just cratered.<\/p>\n

Bulls Run Scared<\/strong><\/p>\n

Every week, the American Association of Individual Investors (AAII) measures investor sentiment. And the latest bullish sentiment reading ranks as nothing short of jaw dropping.<\/p>\n

It plummeted 45%, from 35.5 to 19.3. That’s the largest weekly drop in over a decade, folks.<\/p>\n

What gives? I mean, stocks just hit another record high, and suddenly investors don’t feel bullish at all?<\/p>\n

So much for embracing the notion that the trend is our friend.<\/p>\n

Here’s what you need to know… I’ve said it before, and I’m sure I’ll say it again – when virtually no one is optimistic about the stock market, that’s all the more reason we should be bullish. Just take a look at the data and tell me you disagree…<\/p>\n

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As you can see, when the AAII bullish sentiment reading drops below 25% during the current bull market, stocks (almost) always rally over the next three and six months.<\/p>\n

Of course, the latest reading is way below 25%, which got me thinking about what happens when we get really extreme lows.<\/p>\n

So I went ahead and analyzed the data all the way back to 1987 – the year AAII started tracking sentiment.<\/p>\n

My findings are equally compelling. (But only for those of us with the guts to be contrarians and ignore the “wisdom” of crowds.)<\/p>\n

More Evidence You Should Ignore the Masses<\/strong><\/p>\n

Since 1987, bullish sentiment has dipped below 20% on 26 separate occasions. So you can’t dismiss the findings as anomalies.<\/p>\n

And just like today, when bullish sentiment readings are extremely low, the implications for stocks couldn’t be more, well… bullish!<\/p>\n