The American Association of Individual Investors (AAII) reported yesterday that over 60% of its survey respondents were bearish on their outlook for the stock market for the next six months. Only 19% were bullish.
That’s the most lopsided report we’ve seen in several years. And from a contrarian perspective, it’s bullish.
Back on November 13, 2024 – following the large, post-election rally that pushed the S&P 500 above 6000 for the first time ever – bulls outnumbered bears 50% to 28%. From a contrarian perspective, that was bearish. And stocks have struggled to make any headway since then.
Now, though, with the AAII survey showing such a large bearish sentiment (a contrary indicator), if stocks start to move higher, then we could see a dramatic rally over the next few weeks as bearish investors flip to bullish and chase stock prices higher.
An old Wall Street adage goes, “When everyone is on one side of the boat, go to the other.” Sentimentrader qunatifies whether the advice is worth following. In its analysis, as shown in the Tweet of the Day, of the other five times bearishness was above 60%, the average return six months later was +14.26%, increasing to 22.35% for twelve months. The S&P 500 was up six months later in four of the five instances. Moreover, the market was positive in all instances, looking out for a full year.
by L Roberts
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