Thursday, August 21, 2008

Investor Sentiment And The Bull/Bear Spread

The August 20th investor sentiment survey conducted by the American Association of Individual Investors, indicated bullish investor sentiment declined to 38.1% versus last week's level of 42.86%. The current reading fell below the long-term average bullish reading of 39%.

investor bullish bearish seniment table August 20, 2008The bull/bear spread did indicate more bearishness as well with the spread reported at 1% versus last week's 4%. As the below chart notes, extreme or low investor bullish sentiment historically occurs when the spread is -30% or lower. This extreme lack of bullishness has coincided with a number of market bottoms in the past. Market tops have tended to occur when the spread rises above 30%.

(click on chart for larger image)

The Bull/Bear spread has narrowed to the 1% level versus -33% in mid July. Investors seem to be uncertain about the market direction as the bullish sentiment level has flucuated in a range of 22% to 32% sine the mid July date.

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