Individual investor sentiment surveys are viewed as contrarian indicators. At times when investor bullish sentiment is at its lowest, the indicator would suggest the market is near a bottom. Conversely, when the bullish sentiment reading its at a high level, tacticians would suggest the market is topping.
Since mid July, the S&P 500 Index has increased from 1,244 to 1,285 on August 13th. This represents a 3%+ increase. During this same time period, the bullish sentiment increased from 22.17% to 42.86% on August 13th. Over this same 30-day period the 8-period moving average of bullish sentiment has remained essentially unchanged at 23-33%. On the other hand, the bull/bear spread over this same time frame has increased from -33% on July 10, 2008 to +4% on August 13th. It appears investors were the least bullish on the market at a time when the market was actually bottoming.
(click on graph for larger image)
Data Source: American Association of Individua Investors
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