As I discussed last Thursday, the AAII ?bullish percentage jumped from 30.89% to 39.81% last week, while the number of bears dropped sharply from 38.23% to 26.96%.? I pointed out that ?the reversal in sentiment is consistent with a rebound in a downtrend and not the resumption of the major uptrend.?
Sentiment can be difficult to measure as the data from AAII on the individual investor is used as a contrary indicator. I typically look for extreme low bullish % and high bearish % readings to help me to look for technical signs of a market bottom.
Often times, the bullish % will drop into the 20-23% range before a bottom is completed. The Fear & Greed Index, that I featured last week, did improve slightly from 4 to 11 but is still in Extreme Fear territory.
Late last week, I came across an interesting article about institutional sentiment in the Wall Street Journal. It pointed out that one of Merrill Lynch?s most reliable indicators is also a contrary indicator. In the article, they pointed out that when Wall Street strategists recommend a lower percentage in stocks it is a bullish sign. ?For Merrill, average recommendation below 54% is a buy signal.?
|