AAII Bears/Bulls Ratio Moves Past Significant Level

This morning, our barometers are giving us this message.

Back in early February, we wrote of how the combination of our Psychology Composite moving to P5 along with the Value Line Appreciation Potential dropping to its lowest ranking suggested we take a cautious outlook on the market for the next 3 months or so.  Since then, Psychology has dropped back to P4, but the good news is that if this P5 condition we witnessed is a prelude to a correction, and the natural progression of emotions (especially by the "dumb" investors) is to return to a more healthy nervous state, and the Psychology Composite rating moves to P2 or even P1, you have just seen a normal correction in a bull market.  That is VERY bullish.

So far, we've had a little improvement.  I've shown you some of those indicators, like the AAII Bears/Bulls ratio (shown below).  It has really increased (decreased in the inverted chart below) sharply in the last three weeks and now is at a very bullish state.

That is very good, and in fact, we believe it is a signal that the next few weeks will see other Psychology indicators fall back into a more bullish condition, but it is only one part of our Psychology Composite - which is still stuck in a P4 stage.  Don't get me wrong, P4 is legions better than a move into the P6 category, and it's also a beginning sign that this bull market is still alive and will re-emerge in a rejuvenated condition, but we still have some missing pieces.

Don Hays

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