AAII Bullish Sentiment Hits a Two Year High

According to the American Association of Individual Investors (AAII), bullish sentiment this week rose to 51.23%, which is the highest reading since May 2008.  So what do high levels of bullish sentiment portend for the prices of equities going forward? 

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Comments

[theyenguy]

The Bullish Sentiment being at a 2 year high is an indicator that the market is overbought, yes extremely overbought.

I provide a pre-market financial report, that is, a financial market report before the stock and bond markets open on October 29, 2010 as follows:

Some expect strong growth in China, Australia and emerging Asia to continue. For example, Chuck Butler of The Daily Reckoning, for example on October 28, 2010 reports that growth continues in China, Australia and emerging Asia, and strongly implies that it will be ongoing.

Yet, FXstreet.com reports from Cordoba on Nasdaq New Service on 10/28/2010 at 10:26 PM in article EUR/JPY Breaks Below 112.00 Amid Risk Aversion that the Yen crosses are sinking quickly this Friday in Asia as risk aversion spreads across the board after mixed data coming from several indicators from Japan, Australia and the UK.

I say, if the lower EURJPY, and the other lower yen crosses, hold through the New York Stock Market opening on 10-29-2010 … then the World Stocks, ACWI, European Shares, VGK, emerging market shares, EEM, Emerging Markets Small Cap Dividends, DGS, China small caps, HAO, Australian Small caps, KROO, … will all trade lower in the morning of 10-29-2010 … And the US Dollar, $USD, UUP, will trade higher, and the Euro, FXE, the major worlds currencies, DBV, and the emerging market currencies, CEW, will trade lower.

Falling yen crosses will be the factor turning junk bonds, JNK, lower.

The point here is that falling yen carry trades will preempt, negate, overwhelm and destroy growth anywhere, whether the growth be in China, Australia, or Emerging Asia.

Falling yen crosses come from two factors.

First, risk aversion to sovereign debt issues in Europe, such as the inability of nations like Portugal, Ireland, Greece, Spain, and France to accept austerity measures and every country, but especially Ireland and Iceland, seeking to make bondholders share in mortgage bond, default.

And, secondly, currency vigilantes and bond vigilantes calling the interest rate on the 30 Year US Government Bond, $TYX, and the interest rate on the US Ten Year Note $TNX, higher.

Here in the US, we have the US Federal Reserve, Bank of America, BAC, Banks, KBE, the Nasdaq Community Banks, QABA, and the Mortgage GSEs, Freddie Mac and Fannie Mae, acting as a lending cartel trying in every way possible to maintain the value of mortgage back securities, MBB, and not seeking bondholders to share in any mortgage bond default. A primary example is the Fed coming out with QE 2, which has driven mortgage-backed bonds, MBB, and distressed securities, FAGIX, up in value.

Expectation of QE II, basically from early June 2010, when the EFSF monetary authority was announced, has driven the 10 to 20 Year Government Bonds, TLT, higher. But on October 7, and October 15, 2010, the currency vigilantes and bond vigilantes called the interest rate on the US Government Debt, $TYX, higher, resulting in the destruction of value in TLT, as they believe that the Fed’s purchases of debt monetizes sovereign debt.

I believe that the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, will be going higher from 1.425, on risk aversion to US sovereign debt.

My final remark here is that the fall of the small cap pure value shares, RZV, relative to the small cap pure growth shares, RZG, RZV:RZG, since October 27, 2010, communicates that a bear market is underway, as the major currencies, DBV, turned lower, as the Interest Rate on the 30 Year US Government bond, $TYX, rose above 4%, and as the emerging market currencies, CEW, have fallen lower since October 14, 2010, when the Interest Rate on the 30 Year US Government Bond, $TYX, first rose strongly higher.

For emphasis, I state, the evidence, is clear, cogent and convincing that a bear market has been underway since October 27, 2010.