FYI: What rally? That’s what individual investors are saying this week as bullish sentiment dropped to not only its lowest level of the current bull market but also its lowest level in more than a decade. According to the American Association of Individual Investors (AAII), bullish sentiment declined from 19.34% down to 17.75% this week. That took out the prior bull market low of 17.9% from January.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/lowest-level-of-bullish-sentiment-in-over-a-decade/
Comments
Cautiously, this might be,just might be, good news.
Historically, much has been observed about the inability of forecasters to accurately forecast. Their record hovers around the odds of a fair coin toss.
The AAII participants, as measured by their Sentiment Indicator, share similar odds. As forecasters, they are a sad group. Their record has been studied numerous times. Here is a Link to a rather extensive, practical study made recently by the CXO Advisory Group:
https://www.cxoadvisory.com/22546/sentiment-indicators/aaii-investor-sentiment-as-a-stock-market-indicator/
The results are not pretty using several statistical measures. If anything, there is a tendency to have a negative correlation: when the AAII sentiment is positively high, the S&P 500 tanks although the correlation is extremely weak. Note that the CXO work uses a net, not an absolute, Sentiment signal.
Now for the good news. Over the long history reviewed, the predictions seem to be slowly improving,
Now for even better news. When the Sentment is at extreme values, the correlation reaches its highest level of negative correlation accuracy. See Figure 4 in the CXO presentation. This suggests that the market should generate healthy positive rewards in the next 26 weeks.
Good luck on that outcome. I still don't trust any market forecasts.
Thanks Ted for the reference,
Best Wishes.