Retail investor has whip-sawed from substantially pessimistic to substantially optimistic in the course of just a few weeks according to a survey from the American Association of Individual Investors (AAII).
This level of overall bullishness is the highest since late April 2010 and the highest percentage of bulls since mid April, just as the market made an important top. The nominal level of bullishness isn’t the only thing that concerns me. It is also the fact that retail investors have a very short attention span and are willing to forgive and forget at the drop of a hat. Until we see true capitulation (with continuing reluctance to jump aboard an ensuing rally) it is difficult to see a way out of this choppy malaise.
In my view the AAII survey isn’t very robust given how often it fluctuates between extremes, but perhaps says something relevant for short-term trading. Note that the survey simply asks people whether they are bullish or bearish on the market for the next six months, which probably explains its volatility. Generally, I much prefer fund flow data, such as that from the Investment Company Institute, since it shows not what people say, but what they do.
Still, what’s nice about the AAII survey is that it comes out quickly and often.
(Tip via Abnormal Returns)
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