AAII Sentiment

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BuyAndHoldOn
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AAII Sentiment

Post by BuyAndHoldOn » Sun Jan 07, 2018 9:24 am

Any market timers on here? Mostly kidding, but I find the AAII Sentiment measures to be interesting. I have heard discussion that the sentiment indicators have value *at extremes* in sentiment/markets.

This was a free article.

http://www.aaii.com/sentimentsurvey

AAII Sentiment Survey:
Optimism jumped to its highest level in seven years. Find out how the S&P performed when optimism was previously at this level or higher.

January 4, 2018
Optimism among individual investors jumped to its highest level in more than seven years, according to the latest AAII Sentiment Survey. Pessimism, meanwhile is at its lowest level in more than three years.

Bullish sentiment, expectations that stock prices will rise over the next six months, surged 7.1 percentage points to 59.8%. Optimism was last higher on December 23, 2010 (63.3%). The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 2.0 percentage points to 24.7%. Neutral sentiment is below its historical average of 31.0% for a fifth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 5.1 percentage points to 15.6%. Pessimism was last lower on November 6, 2014 (15.1%). The historical average is 30.5%.

Optimism has now risen by a cumulative 30.5 percentage points since hitting a near-term bottom of 29.3% on November 16. Over the same seven-week period, pessimism has fallen by a cumulative 19.6 percentage points.

There have only been 46 weeks with a similar or higher bullish sentiment reading recorded during the more than 30-year history of our survey. The S&P 500 index has a median six-month return of 0.5% following those previous readings, up slightly more times than it has been down.

Historically, the S&P 500 has realized below-average and below-median returns over the six- and 12-month periods following unusually high bullish sentiment readings and unusually low bearish sentiment readings. The magnitude of underperformance has been greater when optimism is unusually high than when pessimism has been unusually low. In both instances, returns have still been positive on both an average and median basis. An updated table with the historical readings can be found in my Investor Update commentary from three weeks ago.

Some individual investors are encouraged by the record highs for the major indexes, the tax cuts and/or the Federal Reserve’s decision to continue raising interest rates at a gradual pace. Other individual investors are concerned about the possibility of a pullback or a more severe drop occurring. Also affecting investor sentiment are earnings growth, economic growth, valuations and the lack of volatility. Washington politics remain at the forefront of many individual investors’ minds.

This week’s special question asked AAII members how big a percentage gain or loss the S&P 500 will realize in 2018. Nearly two out of five respondents (37%) expect the large-cap index to rise between 6% and 10%. An additional 13% of respondents predict the S&P 500 will realize a gain of between 1% and 5%, 14% expect an increase of between 11% and 15% and 7% think the index could rise by 16% or more. Tax reform was the most common reason given for the optimism, followed by economic growth. A little under 7% of respondents think the S&P 500 will end 2018 down by single digits, while 10% believe the index could incur a double-digit percentage drop. Many respondents anticipate greater volatility with a pullback occurring at some point during the year.

Here is a sampling of the responses:

“8% gain. Continued global economic expansion and the U.S. tax cut will likely push equity prices up.”
“Tax reform should boost the S&P 500 by 15%.”
“Tax reform helps, but the market is already ahead of itself. I’d say 6%.”
“I estimate a 10% increase by mid-year, but a pullback late in 2018 with further interest rate increases.”
“5%. My guess is as good as anyone’s. Volatility will increase.”
“It will dip in the 10% range as some of the many events that could provide a catalyst for a drop finally impact the market.”

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BuyAndHoldOn
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Re: AAII Sentiment

Post by BuyAndHoldOn » Sat Dec 15, 2018 10:32 am

Last January ^^^ Was one of the most Bullish readings for the AAII Sentiment on record. Turned out it was a good time to sell.

Currently, we are seeing one of the most Bearish Sentiment readings. I will let you think about that one.

(For those that don't know: the AAII Sentiment readings have long been considered - at extremes - to be good Contrarian indicators. I.e., Bearish readings indicate better market performance to come, Bullish is the opposite, etc. But only at extremes).


....I don't think this means you can ignore economics/other fundamental factors, but this is a good way of "taking the temperature" of the market, so to speak. Markets are still psychological, even with all the Algo trading


https://www.aaii.com/sentimentsurvey


Pessimism spiked to its highest level since April 2013, while optimism fell to an unusually low level. Plus, this week’s special question asked AAII members how they expect the U.S. economy will perform over the next six to 12 months.

December 13, 2018
Pessimism among individual investors jumped to its highest level in more than five and a half years in the latest AAII Sentiment Survey. Optimism plunged, and neutral sentiment declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 17.0 percentage points to 20.9%. Optimism was last lower on May 25, 2016 (17.8%). The drop keeps optimism below its historical average of 38.5% for the 12th time in 14 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 1.3 percentage points to 30.2%. Neutral sentiment is below its historical average of 31.0% for the sixth time in seven weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked by 18.4 percentage points to 48.9%. This is the highest level of pessimism registered by our survey since April 11, 2013 (54.5%). The large increase keeps bearish sentiment above its historical average of 30.5% for the 10th consecutive week and the 13th out of the last 14 weeks.

This week’s jump in pessimism is tied for the 24th-largest weekly increase in our survey’s history. (The AAII Sentiment Survey started in 1987.) It is also the largest weekly increase since April 2013.

At current levels, pessimism is unusually high and optimism is unusually low. Historically, both have been followed by higher-than-median six- and 12-month returns for the S&P 500 index, particularly unusually low optimism.

The survey period runs from Thursday through Wednesday. Reminders to take the survey are emailed to a rotating group of AAII members every Monday. About half of this week’s votes were placed on Monday and more than 80% were cast between Thursday and Monday.

Many AAII individual investors have not altered their strategies in response to the ongoing volatility. This is not universally the case, as there are some individual investors who have taken a more defensive posture. Cash allocations reached a 33-month high last month according to our November Asset Allocation Survey. Other than market volatility, influencing individual investors’ outlook are Washington politics (including President Donald Trump and the change in House leadership), tariffs (particularly the ongoing trade war with China), corporate earnings, the Federal Reserve, valuations and concerns about the pace of economic growth.

This week’s special question asked AAII members how they expect the U.S. economy will perform over the next six to 12 months. Responses varied. The largest group of members (25%) expect the economy to continue growing, but at a slower pace than this year. Nearly 13% expect growth to remain at a good pace or at least 3%. About 14% expect economic growth to be flat, slightly up or slightly down. Just under 13% think the economy will slow or even fall into recession. Some members say their outlook is dependent on what happens with the trade war (7%) or what the Federal Reserve does with interest rates (3%).

Here is a sampling of the responses:

“Steady but growing at a slower rate than in 2018.”
“Flat to down. I think a lot will depend on what happens with the tariffs and China.”
“Good, but not great. Growing at 3%.”
“Once the trade dispute is solved, I think the economy will do fairly well.”
“Growth will slow with a risk of a recession, especially if trade tensions persist.”

ResearchMed
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Re: AAII Sentiment

Post by ResearchMed » Sat Dec 15, 2018 10:42 am

One member of the Morningstar Discussion Forum tends to post these weekly.

But unfortunately, I haven't been able to log on to M*'s Forums for some time, so I hadn't seen this.

Those opinions had been fluctuating considerably recently, but I had NOT seen this recent result.

Ouch.
Thanks for posting the link.

Is there a link to a graph of these three indicators over time?

RM
This signature is a placebo. You are in the control group.

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willthrill81
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Re: AAII Sentiment

Post by willthrill81 » Sat Dec 15, 2018 12:19 pm

IIRC, at the extremes, AAII sentiment has been an excellent contrarian indicator of future market returns. More 'middling' AAII sentiment has not been very predictive.

But all in all, I don't find it a compelling enough indicator to use for trading purposes.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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