This week Schaeffer’s Investment Research published an article indicating that bullishness among AAII members has more than doubled in less than a month to 49.9% as of last week. This is the highest reading since January 1, 2015.
Past analysis from AAII had indicated that its Investor Sentiment Survey is more of a contrarian indicator, meaning that historically high levels of bullishness are bearish signals and vice versa:
- Analyzing the AAII Sentiment Survey Without Hindsight
- Is the AAII Sentiment Survey a Contrarian Indicator
- Investor Sentiment as a Contrarian Indicator
However, the analysis by Schaeffer’s indicates that high levels of bullish sentiment among retail investors may be a “buy” signal. According to Schaeffer’s Quantitative Analyst Chris Prybal, this is the 11th time since 1988 that bullish sentiment has doubled within a three-week span. His analysis shows that the S&P 500 tends to outperform in the short-term (up top four weeks) following such a spike in bullish sentiment.
The picture isn’t quite so clear in the longer term. For the full details of Prybal’s research, click here for his article.
The AAII Investor Sentiment Survey has been conducted on a weekly basis since 1988. It is open to all AAII members, who offer their opinion of where they believe the market is headed over the next six months. If you are not an AAII member, start your 30-day risk-free Trial AAII Membership to participate in the AAII Sentiment Survey and enjoy these other benefits to help you become a more effective manager of your own investments.