Investor sentiment has taken a turn for the worse this week as the market continued to decline on more weak economic data.  The Investor’s Intelligence Survey showed a drop in bullish sentiment to just 33.3% while the AAII Survey showed a decline to 20.7%.  Both surveys have now decline to historically low levels.  The one exception was the 2008 market when the fundamentals were deteriorating on a weekly basis and investors grew increasingly bearish.  The II survey did not ultimately bottom until bullishness reached the low 20’s.

Charles Rotblut from the AAII elaborates on the decline in small investor sentiment:

“Bullish sentiment fell 9.4 percentage points to 20.7% in the latest AAII Sentiment Survey. This is the lowest that expectations for stock prices to rise over the next six months have been since March 5, 2009. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 2.4 percentage points to 29.8%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 7.0 percentage points to 49.5%. This is a seven-week high for pessimism. The historical average is 30%.

As stated above, bullish sentiment is at its lowest level since March 5, 2009, the approximate bottom of the last bear market. Short-term market bottoms also occurred when bullish sentiment fell to 22.2% on November 5, 2009, and 20.9% on July 8, 2010. However, bearish sentiment was above 55% on all three of those dates, versus its current reading of 49.5%.”

Sources: AAII, II


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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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  • Andrew P

    Sentiment is a short term contrary indicator. So we are due for a little bounce.

  • TPC

    Or is this 2008 when the fundamentals just continue to deteriorate and sentiment remains permanently low? The II survey has a lot of room to the downside here if that’s the case….Could be near term bottom. While I love AAII this chart has proven far more prescient in terms of long-term bottoms in stocks:

  • silly things

    Between II and AAII, which is the better sentiment indicator?

  • TPC

    I prefer II….

  • Eclectic Linkfest

    Although the dichotomy between the sentiment of “pros” and “amateurs” persists, the gap is narrowing.

  • domingo

    Do you prefer to be in the company of the little guys who are extremely bearish?. The AAII IS WARNING A SHORT TERM BOTTOM.It is not a LONG TERM INDICATOR. But “this time is diferent”. We will see.

  • 3421138532110

    Horrible Macro news for 3 months running now, but we’re down 15% on the Macro news, is it priced in now? Earnings are strong! Wait……what? Ouch

    Intel warns 3Q results will miss expectations

  • vol-trader

    I’m on the sidelines, and I am starting to get a bit nervous. This market should have traded through 1000 by now. Everywhere we turn we are getting nailed with horrible news, but the market refuses to break. How is it that we are below 35% bullish, but the market remains rangebound?

  • silly things

    That is typically a strong signal that the bad news have already been priced into the stock price. If you recall, back around 3/2009, market traded side way or even up on bad news days. You’ll find the same pattern around every major down turn’s turning point.

    You’ll find the reverse phenomenon is true too. After major bull run toward new market tops, the market often trades side way or even slightly down on good news. The good news has already been priced in.

    Why is this? The market always looks forward, while the latest economic data are always reflections in the rear view mirror.

  • silly things

    Just because it is in today’s news article doesn’t mean it is news.

    INTC has been down 25% since it’s April peak. Or putting it in another way, are you really sure no one in the whole world saw this coming?