Pragmatic Capitalism

Practical Views on Money, Finance & Life


Being bearish is officially out of style.  Sentiment readings have reached well beyond excessively bullish levels. The most recent Investor’s Intelligence survey showed another sharp increase in bullishness at 56.2%.   This 7.6% surge in bullishness is the largest one week jump since April 2010.  At 56.2% this is also the highest reading since December 2007.  The last time bullishness was even near these levels was April 28th, 2010 just days before the flash crash.

Last week’s AAII survey also showed extraordinarily high levels of bullishness at 57.6%.   This reading is literally off the charts and almost 10 points higher than bullish sentiment at the April highs.

Bespoke Investments highlighted how unusual it is to see both of these sentiment polls at such high levels:

“At a current level of 113.8%, the combined reading is the highest since mid-October 2007, which was shortly after the S&P 500 reached its all-time closing high of 1,565.15.  More recently, the last time combined bullish sentiment was above 100% was in April 2010.”

“Buy the dip” and “don’t fight the Fed” have become universal rally cries in recent weeks.  It now appears as though no one believes the market can sustain a decline.  Unfortunately, the market generally frustrates the most people most of the time.  If that saying rings true today the market is at a particularly risky juncture.

* AAII survey will be updated tomorrow after its latest release.

Update: AAII sentiment fell 17.6% this week to 40%.  According to Charles Rotblut this is the largest decline since January 2009.  Like the current reading, that decline followed a multi month high in sentiment.  The market ultimately plunged until sentiment hit its low of 19% in March 2009.

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC.Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services.He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.
Cullen Roche

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