The American Association of Individual Investors conducts a weekly survey showing the moods of individual investors. It’s been around since 1987 and collects a lot of data.
When the bullish sentiment is at least 20% lower than the bearish sentiment, equities have been higher 6 months later 100% of the time. Yes 100% since 1987. The 2/16 survey found that 19.2% of investors were bullish and 43.2% of investors were bearish, or a 24% gap.
How could this be? It’s because bearish investors are likely to sell, so when the overwhelming sentiment is bearish, stocks become oversold. Then good news can actually trigger a run. Investors also don’t get bearish until the market sells off.
Source: Tom Lee of Fundstrat interview with Josh Brown on The Compound YouTube channel: “Tom Lee on the 4 most important market indicators”.
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