AAII Sentiment Survey: Bullish Sentiment Rebounds to 51.5%

Bullish sentiment rebounded by 9.5 percentage points in the latest AAII Sentiment Survey. The proportion of individual investors who expect stock prices to rise over the next six months rose to 51.5%. Bullish sentiment has now been above its historical average of 39% for 22 consecutive weeks, the second longest such streak in the survey’s history.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, fell 2.1 percentage points to 21.6%. This is the 26th consecutive week that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.4 percentage points to 26.9%. This is the 18th time in the past 21 weeks that pessimism has been below its historical average of 30%.

Bearish sentiment has nearly doubled over the past four weeks, from 18.3% on January 6 to 34.3% now. Though this does somewhat reflect a reversion to the mean, it also shows that some investors are becoming less enthusiastic about the short-term direction of the stock market. The length of the rally, the 1% decline in the S&P 500 last Wednesday (January 19), and the level of optimism signaled by the various sentiment surveys–including ours—are all contributing factors.

The relative decline in optimism that we have seen during the past few weeks was reversed. Better-than-expected earnings and a lack of additional downward volatility and are keeping investors very optimistic.

It is worth noting that bullish sentiment stayed mostly at high levels during its three-week decline in January. Furthermore, optimism has now topped 50% eight times during the past nine weeks. Though extraordinarily rare, we have seen this occur before. Bullish sentiment stayed at or exceeded 50% during a 28-week stretch between August 14, 2003 and February 19, 2004.

This week’s special question asked AAII members for their Super Bowl predictions. The majority of respondents said the Green Bay Packers will defeat the Pittsburgh Steelers.

This week’s AAII Sentiment Survey results

  • Bullish: 51.5%; up 9.5 percentage points
  • Neutral: 21.6%, down 2.1 percentage points
  • Bearish: 26.9%, down 7.4 percentage points

Historical Averages

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at http://www.aaii.com/sentimentsurvey

Start Off 2011 by Improving Your Financial Health: Join the winning team of stock pickers with Wall St. Cheat Sheet’s acclaimed premium newsletter >>