The longest bearish streak amongst retail investors in 30 years.

Each week, (for over 30 years) the American Association of Individual Investors conducts a simple survey amongst their members, asking if they are Bullish, Bearish or Neutral about the stockmarket over the next 6 months.

The pre-cursor article to this post can be found here.

I’ll argue that in moments of crisis or shock, the majority of respondents in such surveys are often on the wrong side of the market. In other words, when retail investors are “losing their heads”, they tend to take the opposite stance to the facts and then don’t change their mind until sentiment reaches the other end of the pendulum.

Today, this survey is experiencing its longest unbroken sentiment where bears have outnumbered the bulls, since July 1990. Back then, the bearish majority survey trend lasted 30 weeks (until February 1991) during which the S&P 500 rose approx. 15%.

The current bearish majority has been in force for 31 weeks (since the last day of February 2020) and the S&P has risen 40%.

Last week’s survey is the narrowest we have seen the bulls to becoming the majority in the weekly poll.

So, after a 40% return, we may start seeing more of the individual investors in the AAII Sentiment Survey, becoming bullish, than bearish.

Have a think about that for a moment.

October 12, 2020
by Rob Zdravevski
rob@karriasset.com.au

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