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Sentiment readings remain at elevated levels this week as the market remains near the highs of the year and investors continue to believe that stocks have only one direction to go – higher.

According to the AAII sentiment survey bullish sentiment rebounded to 47.4%.   All it took was a brief -3.5% decline in the S&P 500 to scare small investors last week and then a brief rebound was enough to make them confident again.  Charles Rotblut of AAII details the results:

“Bullish sentiment, expectations that stock prices will rise over the next six months, rose 7.4 percentage points to 47.4%. This was the 12th consecutive week that bullish sentiment has been above its historical average of 39%.

Neutral sentiment, expectations that stock prices will remain essentially flat over the next six months, edged up 0.4 percentage points to 27.9%. This was the 16th 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 7.8 percentage points to 24.7%. This is a four-week low for bearish sentiment. The historical average is 30%.”

This week’s Investor’s Intelligence survey saw a modest decline in bullish sentiment to 55.7%.  This remains very high in historical terms.

All in all, investors remain convinced that the stock market simply cannot decline and the persistent buy the dip phenomenon that we’ve seen in recent months is a clear sign that portfolio managers are eager to snatch up stocks into year-end.  A sustained bear decline might not occur until 2011.

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