Bullish Sentiment Survey Signaling Market's Turn?

This week's sentiment survey by the American Association of Individual Investors saw bullish investor sentiment jump by 12.21 percentage points. The bull/bear spread was reported at +14 versus -6 last week. These weekly measures are volatile and looking at the 8-week moving average smooths out this variability. The 8 week average increased to 39.56% compared to 37.90% last week.

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Data Source: American Association of Individual Investors

The bullishness reading is a contrarian indicator and a continued increase in individual investor bullishness would be one signal the market could be approaching at least a short term top.

Comments

[Bruce Pile:]

More telling, perhaps, than investor sentiment right now is consumer sentiment. That has shot to a 6 month explosion seen only 3 times in the last 20 years - all sharp turn points back to the downside. I put up some charts on this at my blog pointing out how it jives with some other things.

Oct 18 02:05 PM

[Mad Hedge F...:]

pos When everything is working, and my portfolio is firing on all 12 cylinders, I pinch myself and ask “Is this real? What can go wrong?” I’m reminded of the slave whose task it was to remind conquering Roman generals “All glory is fleeting.” Virtually all of my recommended core longs in gold, silver, Canadian, New Zealand, and Australian dollars, Brazil, Russia, India, South Korea, Taiwan, Vietnam, and junk bonds are at or near highs for the year. I called the bottom in Natural Gas within 40 cents, and mercifully baled on my one short in US government bonds, the TBT. What we are seeing is a global surge in liquidity as cash emerges from the bomb shelter, squints at the day light, and then rushes to buy the first thing it can find. Everything is going up, regardless of fundamentals. It is the proverbial tide that is lifting all boats. You can make a lot of money in these conditions, but there is no way of knowing if this will last for one week, or another year. But they can go on much longer than you think. In the last two liquidity driven markets I traded, Japan in the eighties and NASDAQ in the nineties, fundamental analysts railed against the tide for years, claiming that stocks were overvalued, each call getting their office moved ever closer to the elevator and men’s bathroom. When someone finally did throw the switch on these markets, it got dark amazingly fast. Tokyo went out at an all time high on the last day of 1989, and then dropped a staggering 45% in January. NASDAQ plunged just as fast from its 2000 top. The one thing we can all be certain about is that the survivors have vastly improved their risk control after our recent crash. Make hay while the sun shines, but keep your finger hovering over that mouse. The level of risk is definitely high than it was in March. When the next real downturn starts, it could resemble a flash fire in a movie theater.

Oct 19 11:44 AM