Bulls Finally Back Above Average

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by: Bespoke Investment Group
Summary

Bullish sentiment jumped 6.7% to 38.4% in this week’s AAII survey.

Though it is still within a normal range, the percentage of investors reporting as bullish is now the highest since early May when it rose to over 43%.

This week's increase also ended a streak of eleven consecutive weeks that bullish sentiment remained below the historical average of 38.16%.

So far, earnings season has been solid with above-average beat rates, guidance spread, and positive price reaction. This has certainly played a factor in improved sentiment in this week's AAII survey. Bullish sentiment jumped 6.7% to 38.4%. Though it is still within a normal range, the percentage of investors reporting as bullish is now the highest since early May, when it rose to over 43%. While earnings have likely positively impacted sentiment, we must also note that due to the timing of the survey, yesterday's FOMC decision is likely to weigh little on this week's results.

This week's increase also ended a streak of eleven consecutive weeks that bullish sentiment remained below the historical average of 38.16%. As we mentioned last week, this sort of streak may sound like a negative, but there have been plenty of historical precedents. Since the beginning of the survey, there have been 18 other streaks that have gone 11 weeks or more, four of which have ended right at 11 weeks just like the most recent one. While any extended streak of below-average bullish sentiment has typically lead to outperformance, those that have ended at the eleventh week have actually done even better.

With the increase in bullish sentiment, bearish sentiment has fallen back to the lower end of its range, settling at 24.06%. This was the largest drop in the number of investors reporting as bears since June as the market rebounded from May declines. Speaking of those May declines, the last time bearish sentiment was this low was in the first week of May.

While both bears and bulls saw significant changes, neutral sentiment held firm, only moving a bit more than 1%. At 37.5%, neutral sentiment continues to sit in the upper end of the past few years' range and above the historical average of 31.52%. While bullish sentiment's streak above its historical average may have come to a close, this week coincidentally marked the eleventh consecutive week of above-average neutral sentiment. The streak is even more impressive when taking into account the fact that the percentage of investors reporting as neutral has been elevated all year, with 26 of the 30 weeks in 2019 seeing above-average neutral sentiment.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.