Here’s a quick recap of sentiment indicators for the past week as I saw them:
AAII Sentiment Survey
Retail investors are feeling rather cheeky with 48% bullish and only 36% bearish. Just a few weeks ago less than a third were bullish, and now almost half are. I’m surprised by this quick move.
According to contrarian analysis, this isn’t a good omen for the market going forward. According to data from 1988 to 2007, the market performs best when AAII sentiment is bearish. The more gloomy, the better.
[EDIT: About 3 weeks later (on Jan 2nd), AAII bearishness rocketed to 55%]
The S&P 500 has gone up an average of 18.1% 26 weeks after a bearish sentiment reading above 50%. Right now, we aren’t even close to this sort of pessimism. So be careful out there.
Stock newsletter editors are by far too optimistic now. According to Burke only 25.6% are bearish and 53.3% bullish. Too much euphoria right now in newsletter land. I’d be careful since this matches the other sentiment readings.
According to LowRisk, there are 36% bulls and 30% bears. The last time there were more bulls than bears was back in November 20th.
The four week moving average of the bull ratio is above 50% - a level which usually corresponds with thin air altitudes for the market.
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