AAII: Small Investor Bullish Sentiment Surges

Small investors are getting very bullish on the equity market again.  The latest reading from AAII showed the highest level of small investor sentiment since December which was the highest sentiment reading since early 2012.  As you can see in the chart below, this puts us above the “extreme bullishness” range that has typically been consistent with a risk equity market environment.

AAII has more details here:

Optimism rebounded strongly, as pessimism dropped in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 7.7 percentage points to 46.4%. This matches the short-term high set on December 20, 2012. Bullish sentiment is also above its historical average of 39% for the sixth time in seven weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 1.5 percentage points to 26.6%. Even with the improvement, neutral sentiment is below its historical average of 30.5% for the 13th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.3 percentage points to 26.9%. Though the magnitude of the increase is steep, it only puts pessimism at a three-week low. Bearish sentiment is also below its historical average of 30.5% for the fourth time in five weeks.

At current levels, both bullish and bearish sentiment are within their typical historical ranges.

The resolution to the tax policy portion of the fiscal cliff has removed some of the uncertainty that individual investors were facing. Higher stock prices, monetary stimulus, continued economic growth, seasonality and a lack of negative headlines are also playing a role.

This week’s AAII Sentiment Survey results:

· Bullish: 46.4%, up 7.7 percentage points

· Neutral: 26.6%, up 1.5 percentage points

· Bearish: 26.9%, down 9.3 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

Chart via Orcam Investment Research:



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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. %net bulls went up to 20% from 2% the week before. But weekly data is noisy. Looking at 8-week average, %net bulls is 10% vs. 5% before. Not extreme. Maximum net bulls since 1987 was 63%. Maximum gross bulls ever was 75%.
    Anyway, bullish or bearish, someone needs to own the stocks.
    Institutional investors will rarely say they are bearish, since they would have to sell stuff out of fiduciary duty. They are always bullish, or, at worst, say something like “there are pockets of value”.
    Since retail investors are the only ones who can go all cash (apart from hedge funds, may be) their sentiment is at least somehow intellectually integer.
    But trade on it? Net bulls were -25% in February 2008 @ SPX 1,340. And -26% in March 2009, but SPX @ 700. Absolute level of bulls or net bulls doesn’t mean much.

  2. Is it just me or does there appear to be some seasonality to that chart? i.e. There seem to be “Excessive Bullishness” peaks in the first quarter of every year graphed.

    I’d love to see that data overlayed with an SPY chart as there have been April/May sellofs the last few years.

  3. Alex.

    “But trade on it? Net bulls were -25% in February 2008 @ SPX 1,340. And -26% in March 2009, but SPX @ 700.”

    You found the few times in which this data is actually useful – excessively extreme bearishness which is an indication of a loathing for stocks from a demand point of view.

    That’s the proverbial blood in the water. Takes courage to buy at those times but as you have pointed out it is not infallible.

    The gain from that low in March 09 was breathtaking. The S&P did climb from that 1340 level above as well to peak out at 1426 so a decent gain if you sold :)

    I think Investor’s Intelligence has the more useful survey.

  4. Investor’s Intelligence latest survey also showed an increase in bulls and a decrease in bears. I expected to see even more buyers jumping in on this rally when the SPX hit a new 5-yr high and broke out above the prior Sept. high. Most technical analysts view this as quite bullish, but Tom DeMark says that he sees buyer “exhaustion” and he is cautious. I admit that I have mostly missed the rally since mid-November.Doesn’t seem to fit with the macro view of higher taxes, less gov spending leading to slower growth.

  5. AAII sentiment surveys are typically contrarian indicators at extremes. In the trend since 2000, anything in the mid 50s should set off red flags. However, we used to get as high as mid 70s in the old days. As with any indicator – this is one piece in a giant jigsaw!

  6. They finally succeeded in getting the ‘little guy’ in there…..

    Now they can sell…..

    Look for them to FINALLY take this market down. 1470 will be an multi-year high….

  7. Since we are talking or relative highs in bullish sentiment, maybe a “relative” correction (not a real bear market) is nearing which does not put in jeopardy the current primary bull market.

    If the AAII were reporting absolute highs, then we should prepare for the worst…:=)