Short-term Outlook (1-5 Days):  Neutral  From Apr 23, 1215 SPX

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Equity Indicators - Updates and Extremes

AAII Asset Allocation

Yesterday, we took a look at the latest Investor's Intelligence survey of investment newsletter writers.  Despite a drop in stocks last week, the percentage of those looking for a rally not only rose, but pushed into "extreme optimism" territory for the first time since the bull market began.

Individual investors seem similarly unfazed with the latest bout of volatility.  The latest poll from the American Association Of Individual Investors (AAII) showed a tiny drop in net bullishness, despite more than a -2% loss in the S&P during the survey period.

Over the past two weeks, the S&P has lost more than 3% (using weekly closing figures coinciding with the survey periods) but during that time the percentage of bulls has stayed about the same (from 38% to 39%) and the percentage of bears has actually decreased (from 34% to 29%).

On a longer-term time frame, the monthly asset allocation data was also updated.  It didn't show too much of a change - a slight increase in stock ownership, and a similarly small bump up in cash (bonds lost a little).

The dotted horizontal lines highlight the current allocations.  While stock ownership has rebounded 50% from its 2009 depths, it still remains about average when looking at the past 23 years.

Cash, however, remains exceptionally low.  That didn't seem to matter during the latter 1990's, though as we've looked at before, during the last bull market from 2003-2007, dips this low in cash tended to lead to multi-month trading-range types of markets (granted, stock ownership was significantly higher at those points).

InsiderScore.com Buy/Sell Ratio

For the past few weeks, corporate insider activity has been light due to the quiet period many were subjected to as earnings reports were released.

Now it's picking up again, and on a week-to-week basis, insider buying jumped 140% while selling increased only 70%, according to InsiderScore.com.  The bad part about that is that the buy transactions were quite small compared to the sells, so the overall buy/sell score that we post to the site not only decreased, it went back into extreme territory.

Prior to the recent bull market, such extremes were pretty good at pinpointing a market that was about to go nowhere - if it did manage more short-term gains, they didn't last long.

During the recent leg higher, there have been 6 distinct periods when the ratio was in extreme territory.  4 of those times, the market pretty much complied with the historical norms by going flat or giving back any short-term gains.

The 2 exceptions, though, were big failures.  From late July through late September last year, and late February through late March this year, the buy/sell ratio was well into extreme territory, and yet stocks powered higher almost without pause.

So the current extreme certainly is no 100% guarantee that stocks can't resume their momentum run.  But looking at the probabilities, that seems significantly less likely than a market that flattens out at best.

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