Thursday, June 18, 2009

Investor Bullish Sentiment Declines

This week's sentiment survey from the American Association of Individual Investors saw bullish sentiment decline to 33.33% versus last week's reading of 39.25%. Additionally, the week before last saw the bullish sentiment come in at 47.56%. In addition to the bullishness level declining, the bull/bear spread is -13% versus +11% two weeks ago.

The sentiment survey is a contrarian indicator, thus the lower the bullishness reading, the more likely the market could move higher if looking at the indicator in a vacuum. The below chart graphs the S&P 500 Index versus the bull/bear spread.

(click to enlarge)

1 comment :

TC said...

A close-up of last year's bull/bear spread mapped to performance of the S&P 500 might lead the observer to conclude, "Sentiment, shmentiment." We also saw a similar condition of seeming excessive bearishness in the Investors Intelligence sentiment of investment newsletter writers last year, just prior to October's collapse.

Given that recent years dominated by underlying bullish conditions might slant one's viewpoint toward such indicators as sentiment, one might be well-advised to consider how underlying bearish conditions (like, say, resulting from the collapse of Wall Street's structured finance infinite credit machine) might require a different view on individual investor and investment newsletter writer sentiment. Indeed, this seems to be last year's lesson...