As we noted last week, Sentiment was pretty neutral as the market tore higher (Sentiment Reading: Neutral).

Have a look at the AAII Asset Allocation Chart is below. It suggests assets are being re-allocated back into equities, however the allocation still remains historically low, which suggests liquidity on the sidelines is still high and can power stocks higher for some times (especially absent a slow offerings calendar).

click for bigger graph

The second chart, AAII bearish sentiment, which scored a huge contrarian buy signal in early March — as big as the one after the 1987 crash — when it hit 70% of respondents to the survey were bearish. It has since moderated, however, and is not at levels yet that would be deemed a negative for stocks.

click for bigger graph

Category: Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “More AAII Sentiment”

  1. ben22 says:


    great post man, I’ve been using these same examples among others. The top chart would be more powerful if it showed the edge up in equity exposure since 1982. Also, are there any charts available on allocation from the 1920-1940 period?

    I wonder though, how many baby boomers, and others, will conclude that stocks are just too risky an asset class. It should only be fitting that the cash allocation goes much lower than where it was 1990 and 2002 given the severity of what we are dealing with right now and the deepness of this recession, which is already worse than any we’ve had in decades. As we can clearly see that hasn’t happened yet. I would also note that we never got back to the ownership levels of equity seen during the late 90′s during the 03-07 “bull market”

    So, I see how your reading this for short term sentiment and I agree, but are you drawing any more intermediate conclusions from this? (1-3 years)

  2. rootless_cosmopolitan says:

    The first chart only shows that stock prices have increased recently, increasing the allocation of stock holdings relative to cash.

    I already had commented the fallacious logic behind the interpretation of the first chart at the occasion of a previous post:

    As for the second chart. Apparently, different measures of bullishness vs. bearishness say different things, whatever view you want to promote. For instance:

    According to this one, NYSE bullishness has been sharply up recently and already reached almost 70%, which is about the same level as of summer 2007.


  3. Andy T says:

    BR. I’ve mentioned this a few times with this ‘asset allocation’ chart. Please explain where I might be wrong…I admit I may be “missing” something here….but….

    Isn’t it true that chart merely lags the general move in the market?

    i.e. if you have $1,000,000 and you owned $600K in stocks and had $400K in cash/bonds (60% in stocks/40% in cash) and you were a steady “buy and hold” type….then you’re 600K in equity was wiped out by Mar09….the equity dropped in value to 300K. But, you still have the 400K in cash/bonds. So now, without doing a single thing, your equity dropped to 42% of your portfolio.

    I don’t think that chart tells you much about what actual decisions are being made by investors. I think it’s more like any other momentum indicator, similar to RSI.

  4. DL says:

    I do believe in “regression to the mean”, particularly where it concerns sentiment, but I don’t think the AAII chart above precludes a quick drop down to, e.g., 775 before the next big up-leg gets underway.

  5. Cursive says:

    If cash were a fixed medium, I don’t beleive I could be seduced by any other mistress at this juncture. Alas, her daddy, Ben Bernanke, is intent on piling on rouge and gaudy lipstick and dressing her in stiletto heels, fishnet stockings and a pleather mini skirt in an attempt to have as many hands laid on her as possible. So, my affections are stymied and, with a long face, I seek other, more healthy relationships. Pity, all I wanted was a lifetime of safety and harmony. But, I have heard talk of a true heart who lives with her father, a parson, at the edge of the forest and her name is Goldie…

  6. cvienne says:

    Maybe there was GOOD REASON to be 70% bearish in March ’09…

    - Economy having lost 6 million jobs since start of recession (and more to come).
    - Federal Budget defecit at record 1.8 trillion.
    - Banks undercapitalized to the tune of $75 billion (after bailouts).
    - Chrysler & GM in bankruptcy.
    - Home Foreclosures, Credit Card writeoffs, REITS to become worse.
    - Negative GDP

    But I guess in 10 weeks ALL OF THAT has gone away…

    All I see is this as being is an overdue “Lehman Collapse Technical Recovery Rally”…It took awhile to play out due to the changeover in Administration…

    While the slow grinding effect of the ACTUAL things in the economy as bullet pointed above will “price” tis market down after this little bit of euphoria has run its course.

  7. leftback says:

    I wouldn’t wander into the forest, or the shopping mall, just yet, even in search of Goldilocks. Here Be Bears:

  8. The Curmudgeon says:

    Do these charts account for Godman Sachs’ manipulation? Or is the sentiment the exact thing they are most interested in manipulating, so they can get the allocations right for the next sheep shearing?

  9. Cursive says:

    AT / LB,

    Any thoughts on opex this week? I’m looking to get short, but am concerned that we will seesaw all week and close with a doji because of opex. In this line of thinking, risk/reward would favor going short Monday morning.

  10. lb,

    isn’t it amazing how fully broken this FinanZi Sistema is?

    why are people looking at old Polaroids in order to divine the Future?

  11. Mannwich says:

    Let’s see, credit availability way down, savings rate climbing. Seems like a recipe for growth to me. Um, no…….we can ignore reality for only so long. I said a couple of weeks back that once things quieted down after the bank manipulations/nonsense that the air would start to come out of the balloon.

  12. DL says:

    I just noticed an odd coincidence. Back in 2008, a low in the market occurred on March 10 (using closing numbers on the SPX). As it happens, March 9 was a Sunday. The rally topped out on May 16 (2008).

    Could history repeat?

  13. dead hobo says:

    These charts are amazing and conclusive proof that buy low and sell high allows you to make money. It also documents that people like to buy stocks in up markets (must go to S&P chart for confirmation) and run from them in down markets.

    They neglect to explain why this oscillation was / is going on. Of course that doesn’t matter with Astrology. Oddly enough, the right part of the bottom chart says investors have been “too bearish” for a much much longer time than any time before. Any reason why the chart doesn’t provide an answer for that?

  14. I-Man says:

    @ Cursive:

    I’m not AT or LB but…

    Stands to reason that you might investigate just who was selling all those calls that got snapped up the past few weeks… last week particularly.

    Usually when so much dumb money starts buying calls like lotto tickets, you can bet that they who wrote them will defend the strike at all costs. I’m not naming any names because I dont have any, but I’d be willing to bet that it wasnt the dumb money writing the calls.

    I think the only thing you’ll see at this months opex is a wave of tears and “dammit they got me again”(‘s)

    OT: Where’s our little cheerleader today? Not so vocal on a down day?

  15. Mannwich says:

    The question is – can we get two or more of these fairly sizable down days in a row? I’m thinking not quite yet, as the “buy the dippers” come in but the grind lower is coming. I’m getting ready for it.

  16. Cursive says:

    @ I-Man 3:59

    Always appreciated. I like your thesis. I just checked and CBOE max pain for SPY is $87. Maybe that is the target or maybe the MM’s move the market to sell more calls/puts to move the target where it needs to be. Are you looking at any data to show that the market is call-heavy?

  17. I-Man says:

    @ Cursive:

    Just a couple of cruises through the news headlines on optionmonster last week, which isnt a bad free options news service. Its pretty obvious from just a glance of the headlines that folks were snapping up calls on techs, homebuilders, financials last week. Combine that with continued weakness in the VIX last week, and I a believer that folks were not giving the same weight to the puts. I’m not much of a raw data guy and its rare that I trade options anymore. That optionpain site is way cool btw. Thanks for sharing.

  18. Pat G. says:

    “when it hit 70% of respondents”

    So what’s the total respondent number? 100? 1000? 10000? It reminds me of the consumer confidence number. Who cares?

  19. Hondo says:

    As one of the larger penison funds in the country told me don’t bet that there is that much liquidity coming back into the market. There are many other alternatives verus equities. The game has changed…..debt levels are too high and there is no fire power from lowering interest rates…..if zero has worked not much will but time to deleverage. Most large institutions are playing the credit markets not going back to previous allocaton levels of equity.

  20. Marcus Aurelius says:

    These charts have no mojo. You can’t really get an accurate market prediction unless you know someone who reads chicken entrails.

  21. matt says:

    Hey, more 20 year charts. thanks. :)

  22. ben22 says:


    How has site traffic been since the start of the March rally? Just curious if you’ve had a slow decline as the market went higher.

  23. adeev says:

    How about the sentiment and cash reserves in Japan in the 90s? The US has not been in a deflationary recession since the 1930s. So looking just 20 years back will not help you much.

    Even if the economy stabilized the debt will not disappear. In addition, the treasuries are a ticking time bomb. Obama needs to sell $2trln of them. Who is going to buy them at the current rate?

  24. Bob_in_MA says:

    So, according to that bottom chart, we entered a bullish environment for stocks in late 2007?

    And, let’s see, late 1992 was a bearish environement…

    So sell low, buy high? Interesting methodology…

    If someone produces a chart that purports to show some relationship to the market, no matter how idiotic, Barry is drawn to it like a fly to manure…

  25. matt says:

    I heard chart porn makes you go blind.

  26. some_guy_in_a_cube says:

    Just because there is a lot of cash on the sidelines does not imply pent-up buying power is strong. Dream on.

    This is nothing more than wishful thinking, thumb-sucking optimism.

    Cash on the sidelines is being used to pay down massive debt, as fast as possible, not to plow back into the stock market get rich quick casino put it all on red and spin the wheel.

    Sorry, but those days are over.

  27. craig k says:

    Has anyone thought about the possibility of TARP funds being used to liquefy equity markets? causing this incredible run up from the low of March. just a simple question.