The AAII investor sentiment polling as of last week fell the steepest in over a decade! It dropped 45% in one week to only 19.3% bullish. The historical average bullish sentiment reading is 39% – 2X last week’s reading. The bearish sentiment last week was 54.5%. The historical average for bearish sentiment is 30.5%. The ratio of bullish to bearish sentiment is clocking in at a remarkably low 0.75. This level hasn’t been seen since the bear market lows of late 2008-early 2009. Of course this set of facts has been historically bullish. Lou Basenase at Wall Street Daily (here) did a good job reporting this tendency as is illustrated in the following table.
Lou stated . . . “Since 1987, bullish sentiment has dipped below 20% on 26 separate occasions. So you can’t dismiss the findings as anomalies. And just like today, when bullish sentiment readings are extremely low, the implications for stocks couldn’t be more, well… bullish! For 24 out of 26 occurrences, stocks jumped higher three months following a low sentiment reading. That works out to 92.3% of the time. The average gain? 6.5%. And for 25 out of 26 occasions, or 96.2% of the time, stocks shot higher six months following a low sentiment reading. The average gain? An impressive 13.4%.”
The strong rebound in the market today (April 16) is historically consistent. While dips can be expected, history appears to be in favor of more stock market strength over the next few months. Jeb B. Terry, Sr April 16, 2013