AAII Sentiment Survey: Bearish Sentiment Rebounds To A 7-Week High

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Includes: DIA, SPY
by: AAII

Bearish sentiment rebounded to its highest level since December 29, 2011, in the latest AAII Sentiment Survey. Bullish sentiment remains above its historical average, however.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 8.9 percentage points to 42.7%. This is a seven-week low for optimism. Even with the drop, bullish sentiment stayed above its historical average of 39% for the eighth consecutive week and the ninth out of the last 10 weeks.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 2.5 percentage points to 30.7%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded to 26.6%, a rise of 6.4 percentage points. This is a seven-week high for pessimism. Even with the increase, bearish sentiment remains below its historical average of 30% for the seventh consecutive week, and the eighth out of the last nine weeks.

A shift in attention back to Greece's fiscal problems has caused some individual investors to become less optimistic about the six-month direction of stock prices. It is also likely that the downward drift in the markets is having an impact, though some of the shift simply reflects a reversion back toward the historical averages registered by the survey.

Even with the increase in bearish sentiment, improving U.S. economic conditions are causing many individual investors to be hopeful that stock prices will rise over the next six months. Bullish sentiment remains above 40%, as it has throughout all of 2011 so far.

This week's special question asked AAII members which industries or sectors they like right now. Energy and technology tied as the preferred sectors. Several members expressed interest in real estate, either real estate investment trusts (REITs) or home building stocks. Many members also said they favor health care and pharmaceutical stocks. When the same question was asked last November, members favored energy and technology stocks, followed by health care and utility stocks.

This week's AAII Sentiment Survey results:

  • Bullish: 42.7%; down 8.9 percentage points
  • Neutral: 30.7%; up 2.5 percentage points
  • Bearish: 26.6%; up 6.4 percentage points

Historical Averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online.

Disclosure:

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.