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Sentiment Update: Significant Jump in Bearish Sentiment

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contrarian investingBy Seeking Delta of http://seekingdelta.wordpress.com/

The NAAIM (active money managers) sentiment survey was not released this week so we only examine the AAII (individual investors) survey in this post.

AAII Individual investors’ outlook for the next six months decreased slightly from last week. Sentiment dropped from 51% last week to 48% this week. Bearish sentiment jumped to 29.8% from 21.6% last week.  The eight-week, bullish sentiment moving average again increased, this week’s reading is 48.0%, and the highest level since February ’07 however it will take a bullish reading above 50.9% next week to continue moving the eight-week average higher.

naaim sentiment survey and returns of the s&p 500
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Individual investor sentiment is back below “extreme” territory (measured as one standard deviation above average) however the eight-week rolling average is remains very close.

A few interesting details from Charles Rotblut at AAII:

“The survey results reflect some response to the election and the Federal Open Market Committee (FOMC) statement, but not enough to draw conclusions from it. The reason is that the survey period runs from Thursday 12:01 a.m. through Wednesday 11:59 p.m. Thus, numbers show a mixture of responses from both before and after Tuesday’s elections and yesterday’s Fed meeting statement.”

“This week’s sentiment survey asked AAII members how, if at all, the problems with home foreclosures have affected their outlook for stocks. The responses were evenly split between those who said the foreclosure problems made them more pessimistic and those who said their sentiment was not impacted by it.

However, there were nuances that should be noted. Among respondents who said foreclosures were having an effect on their outlook, many described the issue as one that impacted homebuilders, banks and the overall economy. On the other hand, there were respondents who said their outlook was unchanged because they did not own homebuilding or banking stocks.”

For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.

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