AAII Bullish Sentiment Goes Parabolic

The American Association of Independent Investors released its weekly survey of investment sentiment. Bullish sentiment surged to 57.6%, up from 48.23% and bearish sentiment fell slightly to 28.50%, from 29.79% previously. Neutral sentiment fell sharply to 14%.

Wow! This was a really interesting report. Bullish sentiment has gone through the roof, reaching a multi-year high. Perhaps this is because Bernanke wrote in an op-ed that his goal was to get the stock market higher, which many market participants took as a sign the Fed would not let the market fall.. The last time we had a bullish reading this high was back on January 18, 2007 when the SP 500 was at 1426. Contrary investors will take this as a signal that we may be nearing a top in the market. I would like to point out that following the bullish number in Jan 2007, the market continued to rally for the next 5 weeks so this does not necessarily mean the market cannot rally further. What was particularly noteworthy from the report was the sharp drop in neutral sentiment. For a long time retail investors have been uncertain about the economy and therefore the stock market. This week a large number of neutral respondents flipped bullish. Call it the QE 2 effect I guess, but the market is starting to get a bubbly feeling. The Fed is doing its best to precipitate another asset bubble and it looks like it will be in the stock market this time.

Click charts for larger image

Here is a shorter-term chart of AAII sentiment.

Here is a longer term chart comparing AAII bullish sentiment to the SP 500.

Finally, here is a chart which compares the AAII bearish sentiment to the SP 500.

Black Swan Insights

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AAII Bullish Sentiment Goes Parabolic

AAII Bearish Sentiment Surges

The American Association of Independent Investors released its weekly poll of investor sentiment. Bullish sentiment fell to 48.23%, down from 51.20% last week and bearish sentiment surged to 29.79%, up from 21.60%. Investors who were neutral on the market came in at 22%.

This was a very bizarre report from the AAII since bearish sentiment rose dramatically despite a rising market environment, which is very rare. This indicates retailers were probably nervous going into the elections and the Fed meeting. From a contrary perspective this is slightly bullish and means that average investor does not trust this rally.

Frankly, I would be very cautious at this point regarding the AAII sentiment survey. It has been flashing a sell signal for about 6 weeks now and the market has continue to surge. I think QE 2 has distorted all market indicators.

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 S&P 500

Here is a chart which compares AAII bearish sentiment to the S&P 500

Black Swan Insights

Read more >>

AAII Bearish Sentiment Surges