After last week's sharp decline in bullish sentiment, the bulls started to come cautiously back. According to the American Association of Independent Investors bullish sentiment increased to 47.4%, up from 40%, while bearish sentiment fell 7.8% to 24.7%. Neutral investors increased slightly to 27.9%.
Over the last few weeks we have seen dramatic and often erratic moves in the AAII sentiment, which have not been particularly helpful for trading purposes. This week we see that bullish sentiment remains high, but this has brought upon the usual sell-off. Call it the QE 2 effect I guess, as investors begin to believe the market cannot go down because the Federal Reserve will simply print more money. Talk about moral hazard to the highest power! Never before has the Fed explicitly said it wanted higher stock prices.
Here is a short-term chart of the AAII sentiment survey.
click charts for larger image
Here is chart of AAII bullish sentiment vs the SP 500.
Here is a chart which compares AAII bearish sentiment vs the SP 500.
Black Swan Insights