As the name suggests, the weekly American Association of Individual Investors (AAII) sentiment survey is an attempt to measure the sentiment of individual investors. The AAII members who respond to the survey indicate whether they are bullish, neutral or bearish with regard to the US stock market’s performance over the coming 6 months. The AAII then publishes the results as percentages (the percentages that are bullish, neutral and bearish). The Consensus-inc. survey is a little different in that a) it is based on the published views of brokerage analysts and independent advisory services and b) the result is a single number indicating the bullish percentage. However, the results of both surveys should be contrary indicators because in both cases the surveyed population comes under the broad category affectionately known as ‘dumb money’.
In other words, in both cases it would be normal for high bullish percentages to occur near market tops (when the next big move is to the downside) and for low bullish percentages to occur near market bottoms (when the next big move is to the upside). That’s why the current situation is strange.
This post was published at GoldSeek on 2 October 2016.
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