The AAII survey is a public sentiment survey that is released weekly. AAII Survey

Tonight we are going to show annotated charts of the NASDAQ Composite, S&P 500, and Russell 2000 and mention the bullishness in the current AAII numbers.

The AAII survey is a public sentiment survey that is released weekly. Bullish and bearish percentages are given. Currently, the public is extremely bearish. We have not seen this level of bearishness since October of 2002. We have mentioned this survey in a recent commentary, but last weeks readings were even higher than the bearishness expressed around the June bottom. Even though this is not the most reliable sentiment indicator, (we prefer the Investor's Intelligence survey) when the levels of bears minus bulls is this high, it is relevant. The first chart shows the last ten years of the NASDAQ Composite with the AAII survey of bearish percentage minus bullish percentage underneath.

The NASDAQ Composite is possibly forming a short-term double bottom that could later lead to a strong advance (if the right resistance levels are taken out). We have shown the RSI indicator under the chart and you can see the strong divergence between the indicator and each successive bottom in the NASDAQ. This is very bullish. We have noted the first resistance level that needs to be taken out to know that we will have an advance from the double bottom. If that resistance level is taken out, we expect the NASDAQ to move to the 2150 level. The 2190 level will be next, if the NASDAQ has a sustained break above 2150.

The S&P 500 looks the most constructive currently. The index broke above its 50 day moving average and is right below the 200 day moving average. A break of the downtrend line, followed by a break of 1280 suggests that the S&P 500 will move back to 2006 highs at a minimum.

The Russell 2000 chart is not as constructive. The index is currently sitting at the lower end of its channel and still has quite a move to go before it breaks above its 50 and 200 day moving averages. A break of the 703 area and both moving averages should propel a move to the downtrend line at a minimum. A break of this line suggests a move to the 2006 highs at a minimum as well.

As a late sell signal is still possible, (a break of the 2000 level in the NASDAQ) the AAII percentages are extremely comforting. If the market is going to advance powerfully, we would definitely expect it to happen here.