David I. Templeton

About the Author David I. Templeton

HORAN Capital Advisors (http://www.horancapitaladvisors.com) is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (http://disciplinedinvesting.blogspot.com/)

Bearish Sentiment is Spreading

Since mid March the AAII bullish sentiment reading has been below its long term bullish average. As a contrarian indicator, low levels of bullish investor sentiment typically point to equity markets that are near their bottom. Keeping in mind though, this sentiment reading is most predicative at its extremes. Earlier this week, the AAII bullish reading declined 4 percentage points to 28.1% and the bearishness reading jumped 11 percentage points to 39.9. The bullishness level is now more than one standard deviation below its long run average.

From The Blog of HORAN Capital Advisors


Data Source: AAII

In addition to a low level of bullishness for individual investors, the recent release of the NAAIM Exposure Index declined to 16.39%, down from 21.34% in the prior week. The NAAIM Exposure Index represents the average exposure to US Equity markets reported by NAAIM members.NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group. As noted in the below chart, low NAAIM Exposure Index levels have generally coincided with equity market turning points.

These various sentiment measures seem to be coming together at the same time to indicate a bearish view of the markets. Since these types of sentiment readings are contrarian ones, possibly the market is nearing a turning point with stronger returns through the fourth quarter. As we have noted numerous times in prior posts, sentiment measures alone must be evaluated in the context of other market and economic fundamentals.


Stay Ahead of Everyone Else

Get The Latest Stock News Alerts