Sentiment Signals: Surveys still toppish

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Last week I reported on the results of the AAII Investor Sentiment Survey, showing that the bullish and bearish sentiment readings were at fairly extreme levels. Matters eased a bit over the week ended January 12, 2010, with the bulls declining to 52.3 from 55.8 in the previous week and the bears increasing to 23.4 from 18.2.

Sources: AAII Investor Sentiment Survey; Plexus Asset Management.

Wheras the AAII Survey focuses on individual investors, the Investor Intelligence Survey deals with financial newsletter writers. This survey measured sentiment over the same period as the AAII, but experienced bullish sentiment rebounding to 57.3 from 54.5% during the previous week, putting the reading slightly below the December 2007 high of 58.8%. The bears declined to 19.1% from 20.5%, registering a reading below 20 which was last seen at the market top in April 2010.

Although I do not have raw data going very far back for the Investors Intelligence series, the combined reading of the AAII and Investors Intelligence Surveys nevertheless makes for interesting reading.

Sources: AAII Investor Sentiment Survey; Investor Intelligence Survey; Plexus Asset Management.

Notwithstanding the above-mentioned statistics, two days ago I published a post asking the question: “Is equity sentiment really overbullish?”. I said: “Sentiment indicators from the AAII and Investors Intelligence indicate that stock market sentiment is at historically high levels and has been for a while. However, whenever I discuss stock markets with people – ranging from private investors to institutions to journalists – most of them seem to be more concerned about a looming correction in the near term than being bullish. Maybe it is just a question of communicating with different people from those participating in the surveys, but anecdotally I do not observe particularly bullish sentiment.

I then proceeded to run my own survey to try to get a feel for how the readers of Investment Postcards and The Big Picture (Barry Ritholtz’s blog) see matters. This poll runs until the end of today (Sunday) after which the results will be reported and discussed on the blog. In the meantime, you still have a few hours to cast your vote here.

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2 comments to Sentiment Signals: Surveys still toppish


    Hi, I think the all-time high for the bull-bear spread on the I.I. was about 43% in 1984 and 2007.

  • PdP:

    HI! Thanks for your efforts to talk about market sentiment lately, a topic I am very well versed in.

    If you overlay your last chart with the SP500 you will note that it tracks price rather nicely. So what is going on? As prices go down, investors become bearish (as you would expect) and as prices go up investors become bullish. Now sentiment is a leading indicator of price and trends will generally break before price by a couple of weeks. But ask yourself this: what good is sentiment if it only tracks price?

    I contend that it is worthwhile tracking sentiment because it is in the extremes of sentiment that new trends generally form. What used to be extreme is no longer extreme – think overbought becomes more overbought. I have characterized this as the “it takes bulls to make a bull market” scenario, and it appears that we have the makings of such a scenario now. HOWEVER, while the technical underpinnings are there, we won’t know until after the fact. Such conditions were found in 1995, 1998/99, 2003 and 2009. We find them here but once again you never know until after the fact.

    Here is a recent commentary that shows some of the research in more detail:

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