AIM

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AIMModel

The Advisor & Investor Model (AIM) is a model consisting of sentiment readings from several popular (and some not-so-popular) advisor and investor surveys. The index is computed on a weekly basis, which smooths out some of the daily fluctuations.

This model takes advantage of the fact that when the typical investor and investment advisor should be most bullish, they are most bearish. And, when the markets are getting overbought and are about to turn, these Johnny-come-lately are most bullish.

The components of the model are the four most-popular sentiment surveys - Investor's Intelligence, AAII, Market Vane and Consensus. They are each monitored for individual statistical extremes, and combined to form the AIM model.

When a preponderance of the survey respondents are more bullish than they've been in the recent past, then the model will move towards its upper (red) trading band. When it approaches this band (or exceeds it), then we should be concerned that too many investors are expecting higher prices, have likely already bought, and therefore support for further prices gains is minimal.

When the model has moved towards or outside of its lower (green) trading band, then we know that investors have soured on the market's prospects to an extreme degree. This rarely lasts long, as the market has a strong tendency to rebound after such episodes. These signals are especially strong when the market tone is positive (e.g. the 40-week moving average of a broad index like the S&P 500 is rising).

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