Will the 'Smart Money' or the 'Dumb Money' Be Right This Time?

This past week's American Association of Individual Investors bullish sentiment reading saw an increase to 38.6% versus last week's reading of 22.2%. The long term average of the bullish sentiment level is 39% so the reading remains below this longer term trend. The 8-period moving average of the reading declined to 37.5% from 37.9% last week and is the fourth straight week the 8-period average has declined. The bull/bear spread came in at a flat 0%.

For contrarians, individual investors seem to remain cautious about the future direction of the market. Guy Lerner of the Technical Take website notes the so called "smart money" indicator has turned bearish. Guy notes the "smart money" tends to get the trends right, while the "dumb money" does not. We will see. If we could break resistance of 1,100 on the S&P 500 Index, a further move higher in the market through year end is possible.

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Comments

[bartpr:]

sentiment below 25 has given mixed signals. hence it is not reliable. when it works it is great. when it fails, losses are the result.

Nov 16 06:28 AM

[David Van K...:]

I've asked many times, and no one has come through: Is there a study somewhere that shows that contrarian readings of the AAII weekly survey are successful? I think it's an old wive's tale, and that it is worthless. "Guy notes the 'smart money' tends to get the trends right, while the "dumb money" does not." Where's the data to support this statement? Was LTCM smart money? Lehman? Citi? Bear Stearns? Merrill?

Nov 16 10:09 AM