Schaeffer's Trading Floor Blog

Bullish Sentiment Near Historic Lows May Offer a Buying Opportunity

AAII survey shows lowest level of bullish sentiment since March 2009

by 6/28/2012 10:42 AM
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This morning, Schaeffer's Senior Technical Strategist Ryan Detrick touched on how short interest recently made another all time high on all optionable equities. One other thing that caught my eye this morning was the latest results of the American Association of Individual Investors (AAII) Sentiment Survey routed around by Schaeffer's Quantitative Analyst Chris Prybal. For those of you unfamiliar with this survey, the company basically surveys their members and asks them what their outlook is for the next six months. The choices are simply bullish, neutral, or bearish.

One of the ways we dissect this data is to calculate a 10-week moving average of the percentage of members that are bullish and overlay it on a price chart of the S&P 500 Index (SPX). As you can see in the chart below, when this figure gets down to 30% or below it signals a decent buying opportunity for the SPX. Also, notice how the current reading is at its lowest level since March 2009, which we all remember as a historic buying opportunity.

When you combine this survey with other sentiment indicators, it's pretty clear there is a lot of pessimism toward this market. We currently find ourselves in a volatile trading range, but if the SPX can get above some of its short-term technical hurdles, there is a lot of sideline money waiting to be put to work.

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