AAII: UNUSUALLY HIGH LEVELS OF PESSIMISM
By Charles Rotblut, CFA, AAII
Bearish sentiment rebounded to an unusually high level, while bullish sentiment remained at below-average levels in the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.5 percentage points to 28.0%. This is the ninth consecutive week that optimism has been below its historical average of 39%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 0.9% to 30.0%. This is the third consecutive week that neutral sentiment has been slightly below its historical average of 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.4 percentage points to 42.0%. This is the seventh time in the past eight weeks that pessimism has been above its historical average of 30%.
The spread between bullish and bearish sentiment, the bull-bear spread, widened to -14 percentage points. This is the third negative double-digit spread in the past four weeks.
Bearish sentiment rebounded back to an unusually high level. This is the third time in the past four weeks, and the fourth out of the last eight, that pessimism has exceeded 41%. Bullish sentiment, on the other hand, is right at the separating point between the typical range of readings and a level that is unusually low.
Individual investors remain concerned about the European sovereign debt crisis, the pace of U.S. economic growth, and the recent downward volatility in stock prices. Underlying this are fears that a repeat of last summer’s correction could occur this year. Also playing a role in hurting sentiment is the lack of positive catalysts.
This week’s special question asked AAII members what they thought about the Facebook (FB) initial public offering. Many respondents said the IPO was overvalued, overhyped or otherwise risky. Some said they were not surprised by the poor performance of the stock, and thought the market was acting in an efficient manner. A few said they were surprised about how the IPO was handled with some going as far as to call the offering a “fiasco”. Others were more critical and opined that the investment industry puts individual investors at disadvantage, especially relative to institutional investors.
Here is a sampling of the responses:
- “I felt it was overhyped from the beginning.”
- “There was adequate information regarding Facebook to make an investor wary of the IPO’s outcome.
- “It fulfilled my expectations in every respect. I didn’t see Warren Buffett investing in this turkey.”
- “The market worked the way it should when presented with a problem offering.”
- “It was a fiasco that can dampen individual investors’ enthusiasm for IPOs in particular, and the stock market in general.”
- “It gives further credence to the theory that the market is rigged toward the big-money investors and against regular people.”
This week’s AAII Sentiment Survey Results:
- Bullish: 28.0%, down 2.5 percentage points
- Neutral: 30.0%, down 0.9 percentage points
- Bearish: 42.0%. up 3.4 percentage points
Historical averages:
- Bullish: 39%
- Neutral: 31%
- Bearish: 30%
Charles Rotblut
Charles Rotblut, CFA, is a vice president of the American Association of Individual Investors. He is the editor of the AAII Journal. He authors the weekly AAII Investor Update e-newsletter and his commentary is published on both Seeking Alpha and Forbes.com.
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21 Comments
Pessimism- if only the the 10y TSY could speak.
What are investors doing with their money? What do the Rydex numbers say. What are the cash levels of instituions/PM right now? Not even close to being near a short term bottom. You’ve got something between 1150-1240 until this occurs unless Ben comes in with more of the same.
Heck if Ben doesn’t come in I full expect the entire move from October to be erased by the end of July. If nothing happens then I expect the entire move that was halted by Ben to continue and end where it was headed. 990. But I never doubt the power of his beard to delay1, delay2, delay twist and delay3 the inevitable.
We will go long when Ben’s magical beard moves. Until then our portfolios look like Turtle shell. (yes I still own a sliver of Japan..and yes it’s bleeding)
Can I ask why is Ben in charge? Can someone go read what the Feds duties are and tell me which one they are doing correctly.
What was the 10y UST telling you last year at the BOTTOM? If you had followed it, you would have sold at the bottom and probably bought at the top as rates rose, which would obviously signal that the economy is getting better…..
And regarding the slope of the 200dma, the 200dma was beginning to slope downward last year at the bottom. I can’t past the graph into here, but it peaked at 1286 starting 8/2/11 before beginning a decline to 1257 beginning 1/20/12. Now it’s back up to 1284 and sloping upward…..
So the 10y is where it is right now, European spreads are blowing out and the fiscal situation over there is worse than it was last year….yet look at how well the market has held up. EVERYONE is going to Treasurys and waiting out the European situation. What edge do you have waiting to follow Bernanke? That’s what everyone is doing….
ECRI has been calling for a recession since the end of last September. They said it potentially started in 4Q12 – YET, look at where we are now. NOW they are saying it potentially started 2Q12. As they say, a broken clock….
IMO, Cullen is spot on with his fiscal deficit/economic contraction model – until we drive off the fiscal cliff, the market will be well supported. Bernanke and his so-called money printing is simply an excuse for the market to do what it needs to do in order to make the extreme position look stupid.
@ BJM
THEN BUY!!!!!!!!!!!!
WE KEEP TELLING YOU TO WATCH OUT AND YOU KEEP DIGGING IN. I’ve yelled duck and you think your General Patton.
BUY BJM!!! GO LONG..lever up your positions. Take what ever money your clients pay you and go all in!
I could send you everyting I have and the phone number for my team and you’d argue with them. They could give you everything for free just to try and help a young guy in the business and you’d just dismiss everything that could help you.
Do me a favor. Mr. Bull. Show me your allocation in your next e-mail. Tell me what you have your clients in.
What do you own right here right Now BJM? Let’s see your cards!
Just follow the price action – this is by far the best lesson Brandon has taught this board. Look at how the market behaved as it was topping before this recent 9% decline – very choppy with an emphasis to the downside. It was telling us where it was going. NOW, it’s doing the exact same thing except now it’s with an emphasis to the upside. Eventually it will break upward – who knows what the catalyst may be – doesn’t matter though, b/c it will use any excuse to move up. Perhaps QE3, perhaps EZ deposit insurance, perhaps LTRO 3, perhaps eurobonds, perhaps a better-than-expected employment print, who cares!! Certainly the honey badger does not care – why should you?
Hmmm…this should get interesting. If your using the price action to justify being bullish then you better learn about price action. Quickly. What is the price action of the 10 yr. telling you? oh yeah…dismiss that. Ok how about the DXY? Ahh..stronger dollar does nothing to corporate profits. What about the RUT? Well the RUT is useless. What about Asia? ahhh who cares. What about Oil, Copper? There nothing. What about HYG? Credit Shmedit. Ok…well then what about the SPX?? What is it about the way it bounced off major support that gives you confidence?
It bounced off support like a biggest loser contestant dressed up in a bunny suit with no legs.
Again, What do you own? I want to make sure we can put a measurable rate of return on your call. The rest is just fluffing.
I’m 15% Long
I’m 40% in Bonds-
I’m 45% in cash-
What was the price action of emerging markets, commodities, treasury yields and the SPX back at the bottom last year? All violently downward….
BJM
You have a lot to learn and have no interest in starting
The market will in time help you grow as a person and manager of other people money. Every person I work with had a different view than mine. I was open to learning because I wanted only to help my clients.
For your clients sake I hope the market goes up.
No crash has ever taken place with so many folks expecting one – and as Ferro has said many times, Lehman-like events don’t happen twice. For the market to get creamed as Hussman is planning for, something needs to surprise the crowd. EVERYONE is flocking to treasurys right now, everyone is concerned about a euro breakup, everyone knows job growth is slowing, everyone knows about the upcoming fiscal cliff. What would surprise the crowd? If the ECB comes out and says “ok EZ governments, you’re on your own”, this market would get obliterated. Right now investors are just dumping anything and everything tied to Europe in order to “wait it out”…..well by doing so, it provides those of us willing to take the variant view with a free call option on Europe actually coming together on a solution, however temporary. LTRO proved that the ECB will act when forced, yet global investors are in a “show me” type of mood right now, and are thus unwilling to price in ECB action.
Jim Rogers provides a great template for this environment. Very simply, this year is an election year globally, thus stimulus is the name of the game. 2013 is the year to worry about. This recent pullback is precisely what was needed in order to clear sentiment before a final push higher into the end of the year. Nobody believes it can move higher, and individual business are being out up for sale everyday! Warren Buffett says that buying $1 bills for 50 cents is a concept that either clicks in 30 seconds or it never does – not only does it reduce risk but it enhances returns. Holding positions for a single day based on a particular analog from seventy years ago makes little sense, IMHO – but please continue because I love the liquidity!!
BJM
Bull Markets never look back. They don’t hang out here. A bull market bottoms like a V. When I see that..I’m in. If Ben speaks and the market rips…I’m in.
Europe and the middle east be damned. The honeybadger will run. But he’s asleep being carried by a bunch of ants to the edge of the cliff.
Doesn’t mean he can’t wake up…but until I see him jump..my money is on the ants.
Ben Bernanke and his policies are like the head man in prison. On one hand rapes you while your serving time in Bears Jail on the other hand he does protect you others. He tells you it would be much worse with out his protection. So far your alive but your ass is really starting to hurt.
hahaha…arguably the funniest post I’ve ever seen on PragCap.
Ha ha! My investing position is like a turtle, also. I just sold some of my bonds this morning, the low yields and high prices were incredible! But if Europe truly blows up and China’s growth breaks down, the incredibly low yields may go even lower.
AAII survey – does anyone know how low it got it 2008? Was it at maximum pessimism in , say, late Oct 2008? But then it still took 4 more months for the markets to bottom out. Still may be too soon to buy here.
I went 50% into TLT in my retirment account…and sold when the 10 year went to 1.8% I thought I was Salomon. Unbelievable…I never thought I’d ever see 1.5% yields. CAN SOMEONE GIVE ME ALL THE NAMES OF THE BOND BEARS. Once and for all their lic. should be suspended, revoked and their mouths duct taped.
Whether it is tomorrow, or 6 months from now, how can a TBT bet be bad here? I’m sure it could go lower from here, but jeez… sooner or later it’s got to skyrocket, no? Am I missing something?
Yes..I think..the 10 yr. goes up from here. I wouldn’t touch the 10 yr. I know Ray Dalio will end up the year up 50% because he was levaraged into TLT. But, I can’t move that fast.
Let’s play this out. If you were ever ever going to go long TBT today would be it. But If you could just buy this and never look at it again…I thinkg you’ll make a killing. We are not Japan. Are yields are pinned but even in from 46-49 yields started to rise. From 1946-1980 yields went from 1.55-16%.
So yeah…WTF am I doing….if you want a long term position I’m buying TBT for my son. Thanks…hangemhi. YOu just paid for one semester of college in 18 years.
Swiss bonds reached negative yields today. I don’t see what is stopping treasuries. I was wrong to say that “even if there was not much upside, buying the dips was safe”, so premature to sell the position like you in your retirement account. There are no dips, it’s just up and yes, there was more upside.
Lucky I made up the gains in other markets, because this one was a safe bet.
We are in the disinflation period and Ben is powerless, what is he going to do? Place a bid at the treasury market?! Drive the bullish market even higher!? Doesn’t he see that investors refuse to buy equities despite the treasuries making new highs?
And he has not yet the back up to pull the trigger, the data still is mixed, more monetary stimulus with Ron Paul types breathing at your neck is nor justified. We have to see bigger drops both in equities and in the real economy before deficits get more serious or Ben can do is voodoo of expectation management/herd behaviour.
Now, if you ask me, and the ECB and the EU are going to do the Nth fix to the eurosystem and banks, I would go long european equities and short SPX, as a safer bet. But hey I’m just pulling this for bulls as a suggestion, it’s not what I’m doing, at least this way I can sell my hedges and ride the new bull lol.
lol… my 3 yr old daughter thanks you… then again she’d better be getting scholarships… or my dream for her… making the LPGA… especially if we are like Japan
hangemhi- HOLD- We are anticipating a terrible week next week. HOLD buying TBT.
WE ARE- We may be splitting hairs in the long run. But Next week will be the week that cements monetary easing. I don’t own it. But will pick it up incrementally 10% first..for my son. Again..I bet in 4 years you’ll double your money.
http://seekingalpha.com/article/628191-a-guide-to-contrarian-market-timing
Jeffrey Dow Jones argued in Seeking Alpha that low readings of the American Association of Individual Investors (AAII) Bullish Sentiment Index are a useful buy signal.
It will be interesting to see how much of a lag there is between the low bullish readings of AAII, and when the market has a meaningful upturn.
@VII, you are the funniest poster on pragcap!
Swiss bonds are NEGATIVE. Now, can you believe that?
…and the swissy is way under valued vs. the euro.