New York (HedgeCo.Net) The American Association of Individual Investors started their weekly sentiment survey in June of 1987. This past week’s results caused a record to be broken, but what that record means is uncertain. For the sixteenth straight week the neutral percentage has been over 40% and that snaps the previous record of 15 straight weeks which was set from December 1987 through March 1988.

The previous record is interesting in that it came after the ’87 crash, but the streak didn’t start immediately after the crash. In fact, immediately following the crash, the neutral percentage dropped and the bullish percentage surged to 47% in the two weeks that followed. After the market fell again in November 1987, then the streak of neutral readings occurred.

During the 15-week stretch, the S&P gained over 20%, but then fell for the next couple of months, generating a loss of 6.6%.
During the current stretch of over 40% neutral readings, the market has been choppy, but the overall results show a gain of only 1.75% from March 12 through July 23.

What does all of this say about where the market is heading? That is anyone’s guess. In 1987, investors were cautious after the market bounced back after the crash. Now investors are exercising caution after a big rally over the last six years and now the market has moved sideways since the beginning of February with the S&P 500 trading in a 100-point range.

Individual investors are exercising patience, or at least that is what it looks like. What are they waiting on? Perhaps they are waiting for the S&P to break out of its range on one side or the other. Or perhaps they are waiting for the Fed to move on interest rates. Regardless of what they are waiting on, once they do move out of the neutral camp and pick one side or the other, the market will likely move in the direction they choose, at least initially it should.

Rick Pendergraft
Research Analyst
HedgeCoVest