Saturday, January 12, 2013

A look at investor sentiment

On the investor psychology front, the latest AAII investor sentiment poll was showed a decided increase in the percentage of bulls from the previous week.  The AAII bulls rose to 46% from last week’s 39%.  The bears fell from last week’s 36% to 27% this week.  That’s a little disconcerting but not worrisome just yet.  When the percentage of bulls approaches 50% or higher, then we’ll have reason for concern. 

Elsewhere the CNN Money Fear & Greed Index rose to 84% from last week’s 82%.  CNN classifies this as “extreme greed” with the suggestion that a market top is imminent.  A wide berth must be given to this retail sentiment indicator, which isn’t as useful as the AAII investor poll.  A year ago the CNN poll was at a similar reading of 83%, yet the market advanced for an additional 10 weeks before topping. 

In the overall sentiment picture, I think Barron’s Michael Santoli put it best when he wrote:

“Synthesizing the present investor mood through a multitude of surveys and statistical gauges of behavior and emotion, it’s fair to say investor optimism is climbing toward the upper end of its long-running range, a caution flag that implies the tape is vulnerable to a pullback, or at least a stall.  Yet the crowd’s contentedness isn’t yet wildly out of step with the market backdrop of the indexes stretching to a five-year high.”  

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