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After the difficult September in equities and other risky assets, it isn't surprising that investor sentiment has tilted to the bearish side. The latest AAII sentiment survey shows the bull-bear spread at -10.47%. This was an improvement from the previous week and much better than the -22.67% reading two weeks ago.

The chart below from Schaeffer's Research tells the story. Despite the tick up in bullish sentiment, there are more bears than bulls. This would normally be interpreted as being contrarian bearish.

Still Buying The Dips

On the other hand, the September AAII Asset Allocation Survey showed that investors added to their stock positions. Stock allocations were up 2.5% in the month to 57.8%. Both cash and bond allocations declined.

These are not signs of a capitulation washout bottom in stocks! Despite the terrible investor sentiment survey readings, individuals continued to buy the dips.

Analysts who just follow the sentiment surveys for contrarian signals should be wary. Watch what they do, not just what they say.

Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Source: Sentiment Models Show No Signs Of Capitulation