Sentiment on the part of individual investors in the weekly survey from AAII has been reflecting equity weakness throughout May and this week was once again no exception.  Despite the rally over the past two sessions, declines Monday and at the end of last week have dragged bullish sentiment from 24.8% last week down to 22.53%. At this level, bullish sentiment remains at an extreme low by historical standards and is now at its lowest since December 13th of last year when it was at 20.9%.  Similar parallels can be drawn with another sentiment survey conducted by Investors Intelligence. The Investors Intelligence survey saw a massive drop in bullish sentiment from 49% last week to 42.7% this week.  That brings bullish sentiment in this survey to its lowest level since January 16th.  Respondents who reported that they expect a correction also rose sharply by 5.1% to 38.8%. The last time respondents turned this negative was in the final weeks of December when it rose by the same amount to 39.3%.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Given bullish sentiment has dropped again, formerly bullish investors have joined the bearish camp as it has now expanded to 42.58%. That is a 2.5% increase from last week and up to its highest level since January 3rd when the bearish reading was only slightly higher at 42.77%.  Once again this week, bearish sentiment sits over one standard deviation above its historical average.  This was the second week in a row that bearish sentiment has done this while bullish sentiment is simultaneously more than one standard deviation below its historical average; that is only the 38th time this sort of back-to-back reading has happened in the history of the survey going back to 1987.

Neutral sentiment was little changed falling 0.23% to 34.89% and has basically stayed in the middle of its range from the past few years.  It now sits well off of its multi-year high seen earlier this year. Given neutral sentiment has held steady, bearishness is still the predominant sentiment among investors by multiple measures. Fortunately, many of the current readings more closely resemble those around the bottom of the Q4 2018 sell-off, meaning from a contrarian perspective, a rally is possible.

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