Investor sentiment is a key gauge for the velocity and voracity of a market potential move. A dark cloud has come over the markets in the past few weeks after higher CPI numbers in the US, shocking inflation report in Germany, the threat of war and a hawkish Federal Reserve. Globally Central banks have been raising rates at breakneck speed. The latest AAII Sentiment Survey reflects this mood with the percentage of individual investors describing their six-month outlook for stocks as “bearish” at its highest level since 2009. At the same time bullish sentiment is among the 20 lowest since 1987.
The AAII Sentiment Survey is based on a survey of individual investors opinions on where the market is heading in the next six months. This gives us a useful median between the ‘hectic’ fast money trader to those with longer time horizons. Measuring the crowd psychology or herd mentality is an important part of our work at KnovaWave.
This week’s Sentiment Survey Highlights
- Bullish: 17.7%, down 8.4 points
- Neutral: 21.4%, down 6.5 points
- Bearish: 60.9%, up 14.9 points
Historical averages:
- Bullish: 38.0%
- Neutral: 31.5%
- Bearish: 30.5%
Bull-Bear Spread
- The bull-bear spread (bullish minus bearish sentiment) at –43.1% is consistent with the voracity of this bear market.
- This week’s reading ranks among the sixth most negative in the survey’s history. The spread has been unusually low for the 29th time in 35 weeks.
- The breakpoint between typical and unusually low readings is currently –10.9%.
Bullish Sentiment
Bullish sentiment, expectations that stock prices will rise over the next six months.
- This fell 8.4 percentage points to 17.7% which was among the 20 lowest readings in the survey’s history, which dates back to 1987. This level of optimism was last at a similar level in May.
- Bullish sentiment remains below its historical average of 38.0% for the 44th consecutive week.
- Bullish sentiment is also unusually low for the fourth consecutive week and the 27th time in 38 weeks. The breakpoint between typical and unusually low readings is currently 27.6%.
Bearish Sentiment
Bearish sentiment, expectations that stock prices will fall over the next six months
- This rose sharply by 14.9 percentage points to 60.9%. Pessimism was last higher on March 5, 2009 (70.3%).
- Bearish sentiment is above its historical average of 30.5% for the 43rd time out of the past 44 weeks and is at an unusually high level for the 28th time out of the last 36 weeks.
- The breakpoint between typical and unusually high readings is currently 40.5%.
Neutral Sentiment
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months.
- Fell by 6.5 percentage points to 21.4%.
- Neutral sentiment is below its historical average of 31.5% for the 20th time in 22 weeks.
- It is also at an unusually low level. The breakpoint between typical and unusually low readings is 23.1%.
Historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500. The S&P 500 has underperformed following periods of below-average neutral sentiment, though the link is weaker.
AAII investor
About the AAII Sentiment Survey
The AAII Sentiment Survey is tabulated each week from AAII members being asked a simple question: Do you feel the direction of the stock market over the next six months will be up (bullish), no change (neutral) or down (bearish)?
The AAII Investor Sentiment Survey is conducted each week from Thursday 12:01 a.m. until Wednesday at 11:59 p.m. AAII members participate by voting in the survey above. The AAII Sentiment Survey is open to all members, though a weekly email is sent to a rotating group of members reminding them to participate. Results of the AAII Sentiment Survey are automatically tabulated by our database and published online early each Thursday morning.
Source AAII
From The TradersCommunity Research Desk