Stocks highest since the record levels of early 2000

Investing: What You Can Learn from Mom and Pop
"The highest commitment to stocks since the record levels of early 2000"

By Elliott Wave International

We all love Mom and Pop and cherish the valuable lessons about life they've given us along the way.

Yet, when it comes to investing, Mom and Pop may need to learn some lessons of their own.

Keep in mind that the American Association of Individual Investors' (AAII) weekly survey is said to be representative of "Mom and Pop" investors, well-known for being quite cautious.

The August 2021 Elliott Wave Financial Forecast, a publication which provides analysis of major U.S. financial markets, discussed their behavior as the stock market was staging a significant rally:

In July [2021], the five-month average AAII stock allocation increased to 70.6%, a high level for this normally skittish cohort of investors. ... This is the highest commitment to stocks since the record levels of early 2000.

This sentiment indicator is not meant for precision market timing, and, indeed, it seemed like these normally cautious investors had made the right decision. The rally persisted for the remainder of 2021. But, by early January 2022, the Dow Industrials and S&P 500 hit their all-time highs and have traded lower since.

What does this have to do with today?

Here's an interesting chart and commentary from the August 2023 Elliott Wave Financial Forecast:

This chart shows a jump in the AAII bullish percentage to 59.5% on July 21. ... These mom-and-pop investors are traditionally cautious, so big moves and extreme readings generally reflect important capitulations.

Let me emphasize again that sentiment indicators are important yet you may not want to use them for market timing.

That said, when you combine time-tested sentiment indicators with Elliott wave analysis, you get a much clearer picture.

If you're unfamiliar with Elliott wave analysis, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%. It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

Our friends at Elliott Wave International are sharing with you a special free report ($80 value).

Using 5 must-see charts, "Are Bulls Headed for a Rude Awakening? 5 Market Warning Signs -- Revealed" focuses your readers' attention on 5 key sentiment areas:

1. Foreign stock buyers' behavior: a red flag
2. See what the crowd's attitude towards tech stocks shows
3. Tech stocks vs broad equities: What's the message here?
4. Corporate insiders -- are they buying or selling?
5. Artificial intelligence: See what previous technology fevers signaled

Read "5 Market Warning Signs -- Revealed" now, FREE ($80 value) >>

P.S. From the inverted U.S. Treasury yield curve to the second-largest U.S. bank failure in history (care of the March Silicon Valley bank collapse) -- 2023 has been a year of eerie callbacks to the 2008 financial crisis. See what the rest of the year is likely to bring via our special report >>

This article was syndicated by Elliott Wave International and was originally published under the headline Investing: What You Can Learn from Mom and Pop. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Will The Bears Relinquish Control?

U.S. Stocks: Will The Bears Relinquish Control? -->
February 10, 2010

By Nico Isaac

In case you were hiding out Tiger Woods' style far away from the mainstream media during the past month, let me be the first to say: January saw an abrupt end to the U.S. stock market's record-setting winning streak. Last count, the Dow Jones Industrial Average plummeted 4% in its worst monthly loss in a year.
And, according to one Feb. 1, 2010, MarketWatch story, "The time to consider an exit strategy" has officially arrived. Here, the article captures the public's astonishment turned acceptance of the Dow's boom-to-gloom shift:

"The Dow has shocked the bulls out of their complacency. After all, analysts were looking for the bull market to last until at least the second half of the year. Investors were not prepared for such a sharp decline and now at least some of the chatter has gone from 'how high will the market go?' to 'how low will it fall?' [emphasis added]"
Let me get this straight. The powers that be say it's time to "consider an exit strategy" -- AFTER the Dow has already plunged 700-plus points to land at its lowest level in two months. That's about as helpful as building a life raft AFTER your ship has begun to sink.

Let me get this straight. The powers that be say it's time to "consider an exit strategy" -- AFTER the Dow has already plunged 700-plus points to land at its lowest level in two months. That's about as helpful as building a life raft AFTER your ship has begun to sink.

Get a FREE 10-Lesson Tutorial on the Basics of the Wave Principle
The Wave Principle is a powerful tool when used properly. This free tutorial gives you the foundation you need to put the power of Elliott to work for you. Learn more, and get your free 10-lesson tutorial here.

Then, those same sources go on to say investors were "not prepared" for the degree and depth of the stock market's decline. This is only partly true. On Main Street, the early January flood of bull-is-back-type headlines gushed in and washed all the bears away.
Yet, on our "Elliott wave" Street, preparation for a "sharp" decline in the Dow was fast in place. One week before the market turned down from its Jan. 19 high, Elliott Wave International's Short TermUpdate went on high bearish alert with this commanding insight:

"The Dow's diagonal remains in tact and its form is clear. We will afford the pattern a bit of leeway over the next one-two days... but the structure is very late in development. That means a trend reversal is fast approaching. A potential stopping range is 10,725-10,740. A close beneath [critical support] will confirm that the diagonal is over and the market has started a down phase that should draw prices significantly lower. Once a diagonal is complete, prices swiftly retrace to near its origin, which in this case is 10,263.90, the very first downside target." (Jan. 13 Short Term Update)

Soon after, the Dow peaked within four ticks of our cited upside target; next, it went on to fulfill the second part of its Elliott wave script with a staggering triple-digit slide to "near the origin" of the diagonal triangle pattern, and then some.
That leaves one question: Are the bears now ready to relinquish control of stocks? Don't wait for the market action to "shock" you.

Get a FREE 10-Lesson Tutorial on the Basics of the Wave Principle
The first thing you should know is that the Wave Principle is not a black-box trading system. Elliott waves provide a context for past and present price action. Once you identify to the most likely structure of the pattern unfolding, you can then formulate a forecast for the future. The Wave Principle is a powerful tool when used properly. This free tutorial gives you the foundation you need to put the power of Elliott to work for you. Learn more, and get your free 10-lesson tutorial here.

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