The bullish trend that continues since 2009 has firmly achieved the status of being the second longest Bull market in history. It is also the most hated. The American Association of Individual Investors (AAII) has been reporting market sentiment since the late 1980’s. Their study is revealing.
This past week, the AAII bullish sentiment survey just logged its 110th consecutive week below 50%. You read that correctly. For over two years, the majority of investors have been “NOT BULLISH!” During that time, the S&P 500 has increased over 14%, and the DJIA has increased over 15%.
How can so many people get it so wrong? Political temper tantrums and strong opinions on economic policy look to be the likely culprit. It seems that retail traders are still dumbfounded at the progress the market made over the last eight years, or inversely, they are skeptical about the new administration’s ability.
Both attitudes are detrimental to sentiment and forecasting.
This should be a warning to retail traders – the market does not care about personal political and/or economic opinions. We should all use this as a reminder to check our unintentional bias, driven by social influences. There were a lot of traders sitting on the sidelines, or worse, shorting the market for the last two years. They manufactured a crisis in their imagination instead of using good analysis and risk management tools.
The good news is, we have a precedent for long bearish sentiment streaks. The most recent was between 1993 through early 1995. When the Bulls finally exceeded 50%, in 1995 the market shot up over 14% in the following six months (and continued).
If history is setting up to repeat itself, we may see a nice spike once investor sentiment breaks 50% again. Currently, I see no analysis that would cause any major concerns regarding the sustainability of this bullish trend.
This blog post is a snippet out of the weekly Trade Ideas – a market briefing available to all TradeSmart University members. Click here to start a free trial, and read the remainder of the report. Included this week is:
- Analysis of the current market pattern (S&P 500)
- Investor Sentiment
- Market Stability and Performance Measurements
- 2 Potential Warning Signs of Short-Term Bearishness
- Analysis of Market Volatility – VIX
- Weekly Scans
- Power Trader LIVE Analysis
- List of over 140 Top Stocks and ETFs going Ex-Dividend This Week
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