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. . . .
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Source:
Overheard: It’s Bearable
WSJ, July 7, 2010, 6:09 P.M. ET
http://online.wsj.com/article/SB10001424052748703636404575353194180224482.html
AAII Sentiment: 58% Bearish
Babak, Trader’s Narrative July 20th, 2006
http://www.tradersnarrative.com/aaii-sentiment-58-bearish-522.html
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July 8th, 2010 at 9:06 am
“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.”
no kidding BR- I was incredulous, the march up all the while huge warning flags everywhere. I remember seeing Greenberg on Fast Money- he the only casting doubt due to sub prime-
I knew housing was going to all come crashing down in 2006 when I started getting calls from folks trying to cancel their home contracts because their current homes weren’t selling- the RE market went cold-
when just a few months prior I had given them advice to sell their current home right away and rent while their home was being built-
their retort- “If I sell later it will be worth more”-
Who were they listening to? Their realtor’s of course.
July 8th, 2010 at 9:11 am
BR proffered:
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. . . .
reply:
————–
I know. Maybe you should ask an economist about it.
(ROTFLMAO, doubled over, can’t stop, think I swallowed something down the wrong side, OMG)
July 8th, 2010 at 9:15 am
“Us humans are notorious for saying what we hope, rather than what actually is. . . .”
That’s why most people were blind to the pending collapse back then… and also why so many – especially on blogs – will deny any signs of recovery. They’ll miss the recovery just as the people they criticize missed the collapse. It is so easy to get entrenched in any particular mode of thinking, but nothing goes on forever.
July 8th, 2010 at 9:21 am
“Us humans are notorious for saying what we hope, rather than what actually is. . . ”
Excellente, Senor BR.
Understanding human nature plays a key role in success in life … and investing.
July 8th, 2010 at 9:42 am
“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.”
For a trade that was a great time to go long.
As a general trading rule, all rules, facts or otherwise are general, it never pays to put shorts on when the bears are larger than the bulls when using the AAII poll.
July 8th, 2010 at 9:43 am
It is a bit disconcerting to be short with the rest of the great unwashed. I think it all depends on whether the bear market has really returned (my belief) or whether the bull market is intact and we are going to new highs?
Dunno… my thesis has always been that the secular bear market is going to end in a broad trading range (SPX 1200 – 850) on light volume because that’s how long bear markets traditionally end – they sell out on crap volume with no one giving a shit. This could take place over a couple of years. What happened in May seems like a good start to the beginning of the end.
But it’s hard to say. Maybe Doug Kass is right and the asset management business is about to become fun again? That seems like crazy talk to me though. Trading is probably about to become as boring as watching paint dry.
July 8th, 2010 at 10:04 am
I bet if you ran the survey in Chicago you’d get much higher numbers.
July 8th, 2010 at 10:17 am
@Ahab
Those people were idiots no matter whom they were listening to. It isn’t like 2006 was the first real estate slow down in the world. Anyone who takes risks like that will pay the piper at some point. Greed is sometimes the worst emotion.
July 8th, 2010 at 10:21 am
I’ve seen a lot of reports of fund managers going to cash, but very few of fund managers taking short positions.
Anecdotally, that seems more like indecision — or at most, caution — rather than outright bearishness.
Perhaps this will lead to a “wall of worry”, and perhaps this hypothetical indecision will lead to a pull-back from stocks …. and on the other hand, I’m talking like an economist with a bushel full of “perhaps’s”.
Best to just forget I even opened my mouth.
July 8th, 2010 at 10:23 am
I do notice Bill Gross talking up stocks, and when somebody responsible for a lotta money is talkin’ his book, it might smack of trolling for suckers.
July 8th, 2010 at 10:24 am
@Wally,
We were just having that same discussion last night. Markets will fluctuate, but people who stubbornly cling to their world view can miss out on 78% rallies (S&P) because they are blinded by their pessimism or never see the downturn coming because they are blinded by their optimism, rather than what actually is happening.
Houses never go down in price, except when they do.
July 8th, 2010 at 10:29 am
I saw this morning where the IMF says that India may “expand at the fastest pace in 4 years” — yes, this is the same India that is experiencing double-digit inflation, and had nationwide strikes last week over gas taxes.
You can get a lot of nonsense reading the news.
July 8th, 2010 at 10:53 am
I have to agree with Patrick, July 2006 was a great time to go long, the bearishness was way overdone, obviously.
July 8th, 2010 at 11:00 am
@constantnormal:
Of course, with double-digit inflation, it’s easy to “expand” an economy. Or, create the illusion of expansion. It’s just a matter of accounting gone awry. The GDP data is never fully discounted to account for the fact that the money being used to measure it is getting ever less valuable. Just a minor failure of the inflation numbers to capture all of the inflation, and you have a magically-expanding economy, even though everyone in it feels poorer.
July 8th, 2010 at 11:04 am
I tend to agree. It’s hard to envisage where the upside sentiment is coming from. Jobs still remain scarce, the REAL unemployment rate is closer to 20% than it is to 10%, the economy is slowing (as one would expect when an ineffective stimulus program starts running out of steam) and the government still thinks the problem with the US economy is that it hasn’t taken on enough debt. None of that seems to me like an indication that any rally can develop legs.
July 8th, 2010 at 11:05 am
Another item of interest:
http://paul.kedrosky.com/archives/2010/07/observations_of.html
Real estate crash? What real estate crash?
“The future exists today. It’s just unevenly distributed.”
–William Gibson
July 8th, 2010 at 11:22 am
OT: So is this a failed head and shoulders yet? If not, when?
July 8th, 2010 at 11:29 am
OT: Will something else please happen in the world of sports besides Lebron James? I don’t care which team spends all its money and then some to have him carry them into the conference semi-finals next year.
July 8th, 2010 at 11:51 am
@effective demand:
volume was light yesterday so the jury is still out in my opinion, but I’m holding short so I’m biased. Yesterday was just a squeeze, but sometimes a squeeze turns into something more substantial. Just my two cents,,,
July 8th, 2010 at 1:02 pm
Bianco selected a date within a clear-cut bear market so I would expect high bearishness and assume that the no. of bears wouldn’t necessarily come at the exact bottom; within a bear market bearish sentiment obviously will grow before the absolute bottom is reached. Your example from July 20, 2006 is far more relevant because that was during a fairly serious correction in a bull trend (-7.7%). Whether the bull trend that we had been in will continue I obviously don’t know but your example is a much more relevant datapoint than Bianco’s.
July 8th, 2010 at 1:18 pm
[...] investors are getting more bearish. (Big Picture, [...]
July 8th, 2010 at 1:31 pm
The numbers cited here are from last week’s survey. The new numbers (published today) are: 21% Bullish and 57% Bearish. http://www.aaii.com/sentimentsurvey/index.cfm
Since the survey began in 1987, there have been 52 times where the Bearish number has come in above 50%. In 34 of those instances (65% of the time), the S&P 500 went higher over the next four weeks. Incidentally, 9 of the 18 negative four-week returns happened in 2008 (when fear reigned supreme).
It’s certainly not an all-out buy signal, but it’s one data point to keep in mind.
July 8th, 2010 at 6:11 pm
[...] asset allocation, etc. — versus mere surveys,” Big Picture blogger Barry Ritholtz says. “They can be useful, but have huge limitations. Us humans are notorious for saying what we [...]
July 9th, 2010 at 2:01 pm
[...] showed the AAII sentiment survey (25% Bulls, 42% Bears) earlier this week. Here are two charts updating that [...]