AAII Sentiment Survey: The Happy Mentality Continues

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 0.1 percentage points to 42.5%. This is the 14th consecutive week and the 15th out of the last 16 weeks that bullish sentiment has been above its historical average of 39%. This is the longest streak that bullish sentiment has been above its historical average since the period of September 9, 2010 to February 17, 2011, when optimism stayed above average for 24 consecutive weeks.

Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, rose 2.2 percentage points to 32.0%. This is an nine-week high and puts neutral sentiment above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.3 percentage points to 25.5%, a seven-week low. This is also the 13th consecutive week and the 14th out of the last 15 weeks that bearish sentiment has been below its historical average of 30%.

The difference between bullish and bearish sentiment, the bull-bear spread, is at 17.0 percentage points. This is the 13th consecutive week that the bull-bear spread has shown a positive double-digit differential, tying with streaks recorded in 2004 and in 2005. The bull-bear spread stayed in positive double digits for 35 consecutive weeks between July 2003 and March 2004.

Driving the optimism about the short-term direction of stock prices are continued signs of an improving economy and the market’s strong first-quarter performance. Tempering this optimism are concerns about the slow pace of economic growth, rising gas prices, and Europe’s sovereign debt problems.

This week’s special question asked AAII members how often they buy or sell when their sentiment about the short-term direction of stock prices changes. The overwhelming majority of respondents said they do not buy or sell stocks based on changes in their short-term sentiment.

Here is a sampling of the responses:

“I rarely sell on short-term direction, but I will buy if a good stock becomes a bargain.”
“Never, if the only reason is the short-term direction of stock prices.”
“Rarely; it’s difficult to outguess the market.”
“Short-term direction has no effect on my buying or selling, as I am looking long-term. However, if the short-term market is down, I am more likely to buy.”
“I trade based on the expectations for a particular stock, not on short-term market direction.”
“It depends on what is else happening in the world and how that affects stocks.”

This week’s AAII Sentiment Survey results:

Bullish: 42.5%, up 0.1 percentage points
Neutral: 32.0%, up 2.2 percentage points
Bearish: 25.5%, down 2.3 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

To contact the reporter on this story: Charles Rotblut at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com