Stocks: Check Out These Striking Sentiment Gauges

 

This survey just reached its most extreme since August 2021

By Elliott Wave International

The extent of today's upbeat mood toward the U.S. stock market is captured in these two headlines:

• Wall Street's Stock-Market Optimism Isn't Stopping (Wall Street Journal, Dec. 20)
• American households are invested in the stock market like never before. ... (Marketwatch, Dec. 22)

This goes way beyond the typically positive bias around the holiday season. It's much closer to optimism on steroids.

Indeed, the Dec. 20 U.S. Short Term Update, an Elliott Wave International publication which provides near-term forecasts for key U.S. financial markets, discussed two specific sentiment gauges. Here's the first chart along with the associated commentary:

The Bullish Percent in the weekly Investors Intelligence Advisors' Survey is 75.9%, the most extreme since August 2021.

 

 

This second chart -- along with comments -- reveal another extreme.

The Bullish Percent in the weekly American Association of Individual Investors poll is 60.14%, the most extreme since April 2021, which coincided with the peak in SPACs, meme stocks, IPOs and the front edge of the top in the craze for electric vehicle stocks.

Also be aware that the Dow's RSI (Relative Strength Index) closed on Dec. 19 at 86.86, the highest level since January 2018.

And here's another item -- this one from the Dec. 22 U.S. Short Term Update:

The Exposure Index compiled by the National Association of Active Investment Managers ... represents the average exposure to U.S. equities reported by the organization's members, who are active money managers. At 97.32%, active managers are essentially fully invested in stocks.

This brief review of just a few sentiment gauges only scratches the surface of what we are currently examining.

Our technical analysis of the market -- including, of course, Elliott wave analysis -- is another factor that we believe you'll want to consider as you make decisions about your portfolio.

If you're unfamiliar with Elliott wave analysis or need a refresher, read Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. ...

The market's progression unfolds in waves.

You can read the entire online version of the book for free by becoming a member of Club EWI, the world's largest Elliott wave educational community (approximately 500,000 members). Club EWI is free to join and allows you complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free access.