Bullish Sentiment Reaches Highest Level Since April

• Posted by Robert Sinn
• on October 30th, 2011

Bullish sentiment among individual investors reached the highest level since April last week. Meanwhile, active money managers are still quite cautious although they are much less bearish than they were three weeks ago (at the market bottom). Notice that bullish sentiment in the AAII survey tends to serve as a leading indicator, however, it should be noted that the last time bearish sentiment was as low as it is now the S&P 500 ($SPY) suffered a 4-5% pullback in mid-July:

 

 

I can honestly state that one of my biggest mistakes during the past month was not paying enough attention to the record low net long exposure of hedge funds and the record bearish sentiment of active managers as seen below:

 

Sentiment is just one tool among many in a market participant’s arsenal, however, it increases in importance at market extremes/inflection points –  it is now clear that early October marked a key inflection point for equity markets which was confirmed by overwhelmingly bearish investor sentiment . It will be important to monitor sentiment over the coming weeks to look for signs of exuberance and overheated bullish sentiment which could help mark yet another key inflection point for the market.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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