BULLISH SENTIMENT PLUNGES TO A 7 MONTH LOW
By Charles Rotblut, CFA, AAII
Bearish sentiment surged from being below average to an unusually high level in the latest AAII Sentiment Survey. Meanwhile, bullish sentiment plunged to a seven-month low.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 10.0 percentage points to 28.1%. This is the lowest level of optimism registered by our survey since September 22, 2011. The historical average for bullish sentiment is 39%.
Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, fell 3.7 percentage points to 30.3%. The historical average is 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, surged 13.8 percentage points to 41.6%. This is the highest level of pessimism registered by our survey since October 6, 2011. It also the first time bearish sentiment has been above its historical average of 30% since December 29, 2011.
The difference between bullish and bearish sentiment, the bull-bear spread, fell to -13.5 percentage points. This ended a 14-week streak of positive double-digit differentials, the longest such streak since March 2004. It is also the first negative double-digit spread since last October.
Though there have been underlying concerns about the pace of economic growth, the disappointing March jobs data appears to have brought these worries to the surface. Adding to individual investors’ nervousness are the ongoing European sovereign debt crisis, rising gasoline prices, concerns that the market’s rally may be losing steam and uncertainty about China’s economy.
At current levels, bearish sentiment is unusually high (one standard deviation above average), but not at levels that we would consider to be a contrarian signal. It may be worth noting that bearish sentiment stayed above 40% for most of last August and September.
This week’s special question asked AAII members what their expectations for first-quarter earnings were. Responses were mixed, though the majority anticipated companies would report higher profits. Some respondents thought earnings would be flat relative to the fourth quarter. Others were bracing for either below-forecast earnings or a decline in profits.
Here is a sampling of the responses:
- “Most companies will meet or exceed analyst expectations.”
- “First-quarter earnings will be up slightly from the fourth quarter; they will also be positive for most companies.”
- “I’m expecting earnings will be slightly up for most companies. Any major surprises and the market will head down.”
- “Not as strong as in the recent past, but still positive.”
- “Lower than expectations in most cases and throughout most industries.”
This week’s AAII Sentiment Survey results:
- Bullish: 28.1%, down 10.0 percentage points
- Neutral: 30.3%, down 3.7 percentage points
- Bearish: 41.6%, up 13.8 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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14 Comments
Recent NDR data coincides with this…
Daily Trading Sentiment fell to 41 from a high of 90.
Crowd sentiment fell from a high of 71 to 63.
THIS is what is driving the market in the short to medium term. QE, Europe etc.. etc.. etc.. merely coincides with what the market needs to do to rebalance sentiment. The market has proven it will use ANY excuse to rebalance. Obviously the CNBC’s of the world are going to throw up whatever headline they deem significant for the day and claim that it is what is driving stocks. MARLARKEY.
Hmm. Suspicious. This is a vote by members, not like Investor Intelligence which shows bears at the LOWEST since last August. Furthermore, equity put to call readings do not suggest such a high level of bears.
Latest investor intelligence (far more accurate):
http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx
CBOE equity put to call nowhere near the level of last summer.
I trust speculative option readings more than anything from AAII
http://stockcharts.com/h-sc/ui?s=$cpce
Right in time for the market to bottom…
Just like the equity fund outflows data which spiked as well…
Sentiment surveys…great for timing bottoms, perpetually way too early in timing tops, yet again.
Yes, Contrarians are glad to see this data, which suggests that the equity rally still has legs and will likely continue until bullish sentiment goes back to the old highs.
I’m 100% invested- In all the things people worry about.
10%- in China
5% – in Japan
5% – in Europe
The rest is your usual Suspects. Don’t follow me…I sit close to the exit.
@ Crosscreek mentioned to me two days ago to be worried about getting hurt.
Yesterday could have taken me totally out of the SPX from my buys 30 + days ago. Do you know what would have happened had the SPX closed below 1360ish and I would be off the bus…My trades on 55% would have hit me 140-180bps to my portfolio. On the other side some things would have made me money right. But..if your going to trade or take risk you must have an exit plan and stick to it. Little hits are part of the game. No one ever said you won’t lose money.
Remember those Standard Deviation numbers on mutual funds. 19-24% WEll you must take risk to make money. I was thinking about what Crosscreek was saying and I belieive this holds true for my clients as well. If your worried about getting hurt..you should not play! There are times that are more favorable 1982-2000 as well as 2003-2007 Then there are times where there is conflicting data as we have today. The NFL can change the rules to protect the players all they want..but on average many still get injured. If your worried about this…I don’t think stocks and investing are for you. But if you can stand the up and down…over time and listen to Cullens help and others..your going to enrich your self just by allowing your self to take some bumps. Don’t get discouraged..it’s how you know your taking risk to get the reward. Yes valutions are not favorable today so learn other things that may work in an enviornement like today or…be patient and wait. Either way..getting bruised and banged up with losses is ok as long as you have an exit plan so they don’t become something worse.
@VII, thanks for sharing. It is much appreciated. It was very hard for me to sit tight and not sell during the 5-day downturn, which only took th SPX down by about 4.6%, but somehow it felt like more.
@ Larry-
Your spot on. It felt horrible. Your level to sell in another post was spot on also. It is what we had. A close below this week on that number(get’s on one knee and prays for fake GDP numbers out of China)and I would have been stopped out costing 150bps to my performance. Someone sent me the marketanthropolgy 1440 piece and of course I know I’m long…because it pissed me off. But my job is to read all arguments.
Were in for now and have a bunch of different views but the market dictates what happens not my pea brain.
Where are you from Larry? How is the mood there? I’m in northern Los Angeles..we spend too much of what we don’t have here..so I never know if things are good or bad.
@VII, I’m from Boston. The mood here is mixed. A few I know are raving bulls who are too complacent in my view. Others are still so scared about Europe blowing up that they are afraid to do any more than put a toe in the risk pool. Real estate market is strong in downtown Boston but weak in most of the suburbs.
The top 10% are doing very well, spending a lot, but the bottom 90% are struggling, incomes nearly flat while gas and other costs go up. Trickle down from the wealth effect may be working too slowly to pick up much traction for this recovery.
@Larry
We all have memories of life and when we leave this place some you can never describe… You just had to feel it. My son will never know what it was like waking up on a Sunday when Larry and the boys from Boston were coming to the Forum.
One at home one at the garden. You were so scared to lose to the celtics. If you did how could you life be worth living? I hated Parish. I was in grade school back then.
Well same goes for being long Larry from Boston. Its not fun. As much as I wanted magic to beat Larry I wanted it so bad I was scared for them to play. That is is how I feel in this market.
But somehow it brings out the best in those that play. You have to risk losing to get that feeling of watching the fans at the garden commit emotional suicide. Didn’t happen as often as either side would have liked but it always felt good
@VII, I’m 61 yrs old and have been a life-long Celtics fan, going all the way back to Bill Russell vs. Kareem Jabbar, and continuing to Bird vs. Magic, the golden years. My kids (now grown) were all huge Larry Bird fans, and great respecters of Magic and the Lakers, right up to Kobe and the Lakers today. I doubt if either of our teams will make the NBA finals this year, but good luck in the playoffs.
By the way, I did some rotating out of tech and financials, and into defensives like consumer staples, health care, and utilities today.
Rally time!
Well the bulls are probably now back at 7 month highs.
Looks like ECRI was right!
there is still too many people shorting this market at the slightest sign of weakness. Short covering is probably the key ingredients that keeps and possibly will keep this rally going.