The AAII Sentiment Survey has been bullishly skewed for some time now. It wasn't until I went back and looked at the historical data that I realized how skewed the ratio has been.
Last week's report showed the bullish percentage at 51.7 percent and the bearish percentage at 19.3 percent. This put the bullish-to-bearish ratio at 2.68 and little changed from the 2.69 reading the previous week.
What struck me was that the ratio has been above 2.0 for eight of the last 10 weeks and that sent me scouring through the historical data.
There was a stretch at the end of 2010 and beginning of 2011 where four straight weeks and five out of six showed a ratio above 2.0 — and that came in front of a choppy market in 2011.
There was another stretch where the ratio was above 2.0 for six straight weeks in November and December 2005. The first half of 2006 was a choppy period and then the market moved higher in the back half of the year.
To find an actual streak where the ratio was above 2.0 for eight out of 10 weeks, I had to go back to November and December 2004. This stretch of inflated optimism came ahead of another tough time in the market as the S&P 500 moved sideways for the first 10 months of the year and then took off in the last two months.
What these data suggest to me is that investors should be cautious in the first half of 2015. It also caught my eye that all these bullish skews came right at the end of the year.
Could there be seasonality in investor sentiment?
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