AAII Confirms Completely Bipolar Market, Records Biggest Monthly Bearish-To-Bullish Swing In 6 Years

Tyler Durden's picture

Who'd a thunk it - the feedback loops inherent in every aspect of the stock market, courtesy of trillions of simplistic algorithms which only know to do what everyone else is doing, and get stuck in an upward grinding feedback loop, are starting to impact the (pseudo) rational thought of their carbon-based creators. According to AAII, the "net" bullish sentiment jumped to a whopping 50.9% from just 20.7% a month ago, while bears plunged from 49.5% to 24.2% over the same period. While the Bloomberg chart below shows that weekly net Bulls minus Bears read for any given period, a more indicative chart of just how manic-depressive the market has become is the following chart which tracks the monthly sequential change in the investor sentiment. Lo and behold, the most recent 4 week cumulative change is the the 4th highest since 2010, and the biggest since April 2004. In other words, all those who were screaming for an oversold market 4 weeks ago based on AAII data, are now expected to say that this is the most overbought market in 6 years. What is also notable is that the 4 week volatility on the chart itself is the highest since the March 2009 lows, further confirming that nobody knows anything, humans (at least that handful of them that still trades) have no idea what to do, and sentiment is now changing literally on a day to day basis, to keep up with the ridiculous moves in stocks. All in all, a terrific trading environment, where being late in pulling a trigger by one second can and will mean the difference between a profit and a loss.

Below is the chart showing the 4 week swing in Bull-Bear Sentiment:

And here is the weekly snapshot in the bull minus bear difference: that also is near all time records, comparable only to the sentiment shift in March 2009.

And the starkest representatation of just how insecure about their outlook speculators are, is the following chart of the 4 week vol in the Bull-Bear reading:

So, again, because we fear the bulls may keep their mouths shut here, if the AAII data last month anticipated a massive surge in stocks based on contrarian expectation, today's data confirms that the market is poised for a plunge. Will it? Of course not, because this BS metric has nothing to do with the psychology of the marginal determinant of actual stock prices - the quote stuffers, the primary dealers, and of course, the Federal Reserve itself, which is controlled by a ruthless sith lord completely impervious to such things as mere human "psychological" weakness.

h/t Credit Trader

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Mr Lennon Hendrix's picture

Maximum capitulation accuring, silver is at nominal high, the final turn is here.  One to two months tops before we all find out at what pace everone else descends down the rabbit hole to meet us at the bottom ;)

mephisto's picture

That 4-week vol of a weekly data series... not surprisingly noisy. 3 month vol better, surely less noisy?

Anyway, lovely data point depite my geeky gripes. Thx once again. Get through OpEx Friday and Fed doesnt open the QEII taps Tuesday, and we could be in for a ride....

-1Delta's picture

Speaking of OpEx look at total CBOE put volume or OCC for that matter- if QE2.345 is not unleashed on Tuesday... and VIX futures total Open interest is at its highest levels, while VIX.X is on its lowest.... guess im feeling like a contrarian

mephisto's picture

No convexity in VIX futures... (which is how GS survives after selling them all day every day). I prefer SPX puts or the occasional VIX call with fries on the side. But as you say, the term structure is against that one.

So SPX it is. Gamma is cheap. Realised vol is zero, it's being forced that way to weed out early longs. It wont last.

VK's picture

Swinging m'fers!

Ivanovich's picture

And there's the afternoon ramp up.


The reason no one knows what to "feel" is not because everyone is bi=polar.  It's because you've got a bunch of computers running the market, the Primary Dealers continue to put out bullshit about QE and the lemmings (the rest of the carbon based life forms still in the game) are trying to follow along in the daily swings.

HarryWanger's picture

Forget all that - when AAPL falls 20 pts. in a day, the SPX will be down 50 points in a flash. Forget all the other charts, sentiment, psychology, tea leaves, etc. Just watch AAPL.

I only keep repeating it because when it represents 20% of the NAZ and it starts to falter, and it will at some point, the market sells off. 

Keep that ticker on your screen - it's all you need.

Caviar Emptor's picture

All you need if you think the stock market is a barometer for the economy. While you'll be watching AAPL grind slowly higher, your job will go, your industry will be carted off to China and the Sheriff will post an eviction notice on your door. Next you'll get agflation and foodflation, oil be back to $100 and taxes will be on the rise.

AAPL is no way to protect yourself from what's coming. Your buying power is under attack. Only Gold and precious metals can guarantee that your that you can afford what you need. $270 on AAPL will buy anything more than an apple, a small one. 

HarryWanger's picture

I don't think the stock market is a barometer for the economy at all. That's the point I try to get across to people. If it were, you wouldn't see a consumer stock like AAPL running up.

AAPL is not a protection for me from anything. I'm just making money with it while it runs up. Better than not making money, right, no matter how much "buying power" it gives you.

Caviar Emptor's picture

Stock market is supposed to function that way, discounting the 3-9 month horizon. It hasn't ever since MR Market died back in 2009. 

Good luck with that AAPL long. Great American company, no question. Makes all its stuff in China. Which leads back to the central problem.

prophet's picture

NDX rebalance probably not too far off

Perhaps AAPL should step in with their cash hoard and close the Cali deficit.  That should pump some product.


Spalding_Smailes's picture

Get ready for the fall...


Android with its "free" operating system platform for phone manufacturers, this was a game changer that caught microsoft and apple flatfooted. Microsoft blasted google for not putting a price tag on android after 17% market share in 1 year, from a newcomer, whats bill saying now ...

Android continues to grab greater chunks of the U.S. smartphone market while its competitors watch their share shrink or stagnate.

Though still No. 3, Google's Android platform saw its market share climb 5 percentage points to win 17 percent of all U.S. smartphone subscribers for the three months ending in July compared with the prior three months, market researcher ComScore reported yesterday.

Once the cheap ipad spinoffs start to hit the street (with android)in the 4th quarter this will also become a drag. Google will own the portable market within 5 years.I'm not saying apple is a bad company but going forward they will not keep growing at such a crazy pace, no way ...Not in this economy.

"This quarter's growth was driven by smartphones, particularly Android devices," said Francisco Jeronimo, European mobile devices research manager, IDC. "The 15% market share achieved by Android in the quarter is a very important milestone for the less-than-two-year-old Google operating system and shows that the OS is ramping up to become the second biggest operating system as soon as early 2011.

doolittlegeorge's picture

now you know who's financing California's "pay as you go" government.

SpeakerFTD's picture

Funny, we came to the conclusion the whole U.S stock market (and therefore a remainder of U.S. consumer confidence) relies on the health of Steve Jobs.

If he kicks the bucket suddenly...

AAPL falls 10+%

Nasdaq, which is massively weight in AAPL, follows

Arb players drag down other indexes

Electronic alarms trigger.  Market halts.

Lock-limit down on the first open.

Welcome to the U.S. equities market, where the whole structure depends on the continued health of a single individual.


HarryWanger's picture

Nailed it! Pretty crazy when you think about it but it's oh so true.

TraderTimm's picture

On the first readthrough of the parent comment about Apple, I was going to be snarky. But instead, I slowly put my drink down and said - "Damn. He's right."

This is where we are, eh? It is like all the electric power for a city going through a single massive fuse.


rosiescenario's picture

....is Steve's physician long or short Apple...that is the real question...would the SEC consider that trading on inside information, so to speak?????

Maybe I should just hire a private eye to follow Steve around and provide hourly reports?

MountainHawk's picture

AAPL....pure juggernaut recently...

plocequ1's picture

Yes, The market is flooey. Must you keep reminding me? Not a day goes by in which i feel total anger.

carbonmutant's picture

Is this market correlated to AAPL?

Robslob's picture

I always knew the day would come when computers would drive human emotion$$$...

HarryWanger's picture

It's the 3rd largest market cap on the planet. 2nd largest in the US. Its weighting on the indices is incredibly strong. As it moves, so does the market. Even its forward p/e is very close to the SPX p/e. 

Pretty simple, if it keeps going up this strong, the market cannot tank. But when it stumbles, as it inevitably will, the market will flame out spectacularly.

DoctoRx's picture

AAPL is a classic GARP stock.  No debt, no financial engineering.  Even reports GAAP earnings. 

Actually, in a highly correlated mkt, AAPL is a relative value.  Obv there is both headline and real risk re Steve J's health.  But at prob under 14X calendar 2011 earnings, IMHO AAPL could be much, much higher in a 12-month time frame.  And it could achieve this even if BAC goes to 9, DLTR to 35 etc etc.

HarryWanger's picture

And, if it does go much, much higher, where do you think the market will be?? Probably quite a bit higher.

prophet's picture

According to the link below AAPL was not even in the top 25 of the world's largest market caps when the market peaked in 2007.  Makes me wonder ...



Double down's picture

I think Harry is dead on.  Apple's performance is the stock for a large range of indicator.  I think it is the sentiment indicator.   

dvsteenk's picture

Sentiment is no longer driving the markets, only manipulation, both direct and indirect. Crystal clear that the levels we are at today have only one purpose: getting options and futures in the money or expire worthless tomorrow, so the insiders can reap in billions once again. How they manage to do this, i have no clue... keeps me stunned.

ziggy59's picture

21st century schitzoid man bitchUS


goldmiddelfinger's picture

3:30 snap crackle pop. Amazing. The market IS NOT manipulated. Who said that?

HelluvaEngineer's picture

looking like a hanging man candle after a huge run up in my non-professional opinion

Caviar Emptor's picture


Simply the Fed trying to create inflation.

Trouble is, they're succeeding in all the wrong ways since personal assets, employment opportunities, and real estate will continue their post-bubble deflation. 

goldmiddelfinger's picture

Abby JC and Ralph Acca are bullish as is Jeff Sault. Feeling contrary yat?

Caviar Emptor's picture

They were bullish in April before the Flash Crash. They were bullish in 2000 at the peak. They beleive they can talk people into putting money into stocks but they can't. People spent the money they pulled out over the last 20 straight weeks. Hardship withdrawals from 401Ks will only get worse.

Thunder Dome's picture

Market needs lithium prescription.  Can anyone recommend a shrink? 

goldmiddelfinger's picture

Besides Frazier there's Joe Biden he's kinda insightful 'bout them economiks thingys.

StychoKiller's picture

I keep asking my wife (Doctor) to bring me home some Thorazine, but she sez I have to be psychotic first (Catch-22).

CONners's picture

These charts look like noise.

goldmiddelfinger's picture

And they say he ran away


Stranded, stranded on the toilet? bowl! What do you do when your stranded...and you don't have a roll! LOL!

CONners's picture

Using a low pass filter or a power spectral density trransfrom might pull some real information from this noisy data.

Clampit's picture

Not to make light of the algo infestation, but in a world of perfect communication, with everyone trying to extract wealth from the markets, is this not what one would expect?

Any successful trading or market prediction strategy would gain following proportional to its success, thereby changing the input parameters. Making the measurement affects the results (Heisenberg), and no entity can fully predict itself (Gödel).

Trading isn't productive in itself, even more so on microsecond timelines, so when any market moving data set is published the only natural equilibrium to expect is exact balance between the concordant and contrarian participants. 100% noise. Until we start to consider the actual utility in a share of AAPL, as realized directly by the owner without subsequent transaction, and as communication asymptotically reaches perfection, I fully expect the noise to prevail.


cougar_w's picture

To add to your thesis:

The noise was there for many years, it was masked by the actions of intelligent actors (humans) placing buys and sells based on long-term strategies driven by assesments of value and market player positioning. When these humans went bk (as many did) or left the market under pressure (as the rest did or are doing now) then the human element and all evidence of intelligence vanished, leaving only the noise.

The HFT algos are like zero-point energy. They pop in and out of existence at random, literally the quantum static of our financial universe, and you only notice them when that universe is flat, cold and truly dead.

I like metaphors. Especially the ones that are crazy scary.

Pedro's picture

I promise this is not sarcasm, but, isn't the market bipolar because everybody knows we are broke and the economy is a fraud (thus, the bearish sentiment), yet, the fed/govt keep supplying liquidity and propping up the market (thus, temporary bullish on the market,but,not the economy).   It is a little like having intercourse without a condom.  You know the whole time that you should stop and put on a condom and are worried that what you are doing will get her pregnant, but, the temporary pleasure is overwhelming.  Two months later when she breaks the news to you;  Why oh why didn't I use a condom?

cougar_w's picture

Sure, but it makes it really fun to watch.

The only downside is that market manipulating algos can't jump out of 20th floor windows when they mis-fire on a market move. That's when the problem is no longer self-limiting. These mo'fo's are immortal and they don't give a fuck.

On-the-other-paw, if a mis-trade nukes the finances underlying the energy sector, and a bunch of energy brokers go titsup, and the grid snarls up, and then black outs hit regionally, and the servers farms go dark -- then yeah they will have finally jumped from the 20th floor. So I want to see that, yeah.

Caviar Emptor's picture

I think the Fed will succeed in creating inflation, that's what they think we need. The market grinding higher is just one of the ways they hope to accomplish this. That was Greenspan's philosophy and Bernanke has said so as well. It's part of core dogma for the monetarists.