Well, the retailers are certainly back to their euphoric ways as bullish sentiment nears 50%. Usually this is a signal for caution as the retailers are almost always wrong. However, if you look at the charts below, bullish sentiment has been very high for the past 3 months, thanks to the Fed openly announcing they will not let the stock market fall. This sort of government intervention has distorted the market and rendered some indicators (including this one) useless as trading indicators. Historically, retail sentiment has been a good (though not perfect) contrary indicator as one sells when the retailers are bullish and buys when they are bearish. If you have followed this strategy over the last 3 months, it has not worked very well. That said, I still follow this indicator to look for extremes in sentiment that may be helpful in the future. One more thing to keep in mind Just because this indicator has remained extremely bullish for a prolonged period of time, it does not mean the market is near a top. There have been cases over the last 15 years, during a bull market, when bullish retail sentiment actually led to more gains for the general market.
Here is a short term chart of AAII sentiment
click charts for larger image
Here is a longer term chart which compares AAII bullish sentiment to the SP 500.
Finally, here is a chart which compares AAII bearish sentiment to the SP 500.
Black Swan Insights
The crowd is always late to the game.
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