Investment Sentiment Highest Since 2007 Bearish or Bullish?

AAII Investor Sentiment Survey (AAII) measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Bullish sentiment as percentage of the total reached its highest reading since 2007. Like clockwork, commentary suggesting that extreme bullishness is bearish for stocks has begun to circulate around the Internet. While this argument sounds plausible and can be support by the data at times, it ignores the cycles of TIME behind the trend.

TIME is more important than price or sentiment. The follow chart illustrates that relatively extreme readings (either high bullish or bearish) can precede both advances and declines. Why were extreme bullish reading positive for stocks in 2003 but not in 2007 and 2008. The cycles of TIME were different. When TIME is right price will follow either up or down. TIME does not concern itself with investor sentiment.

AAII Sentiment Survey:


There are better, less biased ways of measuring extremes than sentiment surveys within the context of TIME. The following chart illustrates 1-2-3 cycles within the trend. One is complete. Two is a work in progress.



Source: aaii.com