AAII: 25% Bulls, 42% Bears

The WSJ’s Heard on the Street column notes that “individual investors are getting scared. That could be a good thing.”

Only 25% of AAII’s members are bullish on stocks, versus nearly 42% who are bears. That is an unusual ratio. The obvious argument is the growing bearishness is bullish. Before you draw that conclusion, the history of this sentiment indicator is rather imprecise when it comes to timing:

“But investors can take their time phoning brokers, counters James Bianco of Bianco Research. Only some 25% of AAII members were bullish on November 27, 2008, he notes. But stocks still fell 23% over the next four months, before finally enjoying a sharp rally.”

I’ll do Jim one better:  We had an even greater spread of 24% bulls, 58% bears. The problem with that reading was that it occurred in July 20th, 2006 — 15 months prior to the market’s October 2008 top.

I always prefer actual buy and sell driven data — prices, volume, asset allocation, etc. — versus mere surveys. They can be useful, but have huge limitations. Us humans are notorious for saying what we hope, rather than what actually is. . . .


Overheard: It’s Bearable
WSJ, July 7, 2010, 6:09 P.M. ET

AAII Sentiment: 58% Bearish
Babak, Trader’s Narrative July 20th, 2006

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