Sentiment readings remain highly elevated as investors become increasingly confident in the equity market rally. According to the latest from AAII bullish sentiment surged again to 53%. This is the 14th consecutive week in which bullish sentiment has been above the long-term average of 39%.
Charles Rotblut of AAII provided some color on the rarity of this extreme bullishness:
“…bullish sentiment is above its historical average for the 14th consecutive week. The last time we saw a longer streak was in 2004, when bullish sentiment stayed above its historical average for 19 consecutive weeks. Optimism is currently more than one standard deviation beyond its historical average, meaning that this is an unusually high reading. This is also the second time in five weeks that optimism has been more than one standard deviation above its historical average. (Bullish sentiment reached 57.6% on November 11, 2010.)
The more notable statistic this week may be the spread between bullish and bearish sentiment, which stands at +30.5 percentage points. Fewer than 15% of all bull-bear spreads throughout the survey’s history have been wider.
The last time we saw a wider spread was on July 8, 2010, when the spread was -36.1 percentage points (bullish sentiment was 20.9% and bearish sentiment was 57.1%.) This occurred just as the market was setting a bottom during the summer months. The last time we saw bigger positive spread (bullish sentiment exceeding bearish sentiment) was on February 22, 2007 when bullish sentiment was 53.9% and bearish sentiment was 22.3%. There was a short-term pullback in the weeks that followed this reading, but the market was higher in the months that followed.”
This week’s Investor’s Intelligence survey also showed an increase in bullishness to 56.3% from last week’s reading of 55.4%. “Buy the dip”, “buy the rip” and “stocks are a win win” seems to be the motto’s of choice these days.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.