This is where you have problems trying to use AAII sentiment as a trading indicator. Despite the market's relentless rise, retail investors are starting to turn cautious--the exact opposite of what they historically do when the market is strong. Ideally, you would have wanted to see bullish sentiment rise to around 55% in order to clearly signal a top in the market, but Mr. Market is making things difficult with this little twist. So while bullish sentiment is still high, it does not currently mean that the market cannot move higher from here. However, you rarely make money by following the retail traders and they are currently bullish. The bottom line is that right now may not be the best time to initiate new long positions.
Here is a 6 month chart of AAII sentiment.
Click charts for larger image.
Next is a longer chart which compares AAII bullish sentiment with the SP 500.
Here is a chart which compares AAII bearish sentiment with the SP 500.
Black Swan Insights
Related Articles:
AAII Sentiment Rebounds--Oct 7, 2010
AAII Sentiment Down Again
Whos knows where things are headed.
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