In last Thursday’s Chart of the Day, we noted that AAII‘s sentiment survey saw a sharp bearish turn as the percentage of investors reporting as bears saw the fourth largest increase in the history of the survey. This week, sentiment saw modest improvements but continues to have a bearish bias.  Bullish sentiment was up modestly to 23.18% from 21.66% last week.  At this level, bullish sentiment is still over a standard deviation below the historical average.

Bearish sentiment saw a larger move declining 3.3% to 44.85%.  Like bullish sentiment, this move did little in regards to changing where the sentiment reading sits relative to history.  Bearish sentiment remains at an extreme of over 1 standard deviation above the historical average.

The losses in bearish sentiment did not entirely go to the bullish camp.  31.97% of investors reported neutral sentiment, which was up 1.82% from last week.  While this is well below the low end of the past few months’ range, neutral sentiment is now only 0.45 percentage points above its historical average.

Both bullish and bearish sentiment readings were at a historical extreme (over 1 standard deviation away from the historical average) for the second week in a row. The last time this was observed was during the first week of June after May equity market declines. Typically, these can be taken as a contrarian bullish sign. In the past, there have been 16 other times that bearish sentiment was over 1 standard deviation above its average while bullish sentiment was over 1 standard deviation below its historical average for two consecutive weeks.  As shown below, both average and median performance for the S&P 500 have been very strong in the weeks and months after with the S&P 500 moving higher over 80% of the time across each of these periods. Start a two-week free trial to one of Bespoke’s premium memberships to get our best investor research.

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