The Sentiment Survey Flashing a 'Buy' Signal for S&P Stocks

Bullish sentiment on the AAII survey has more than doubled in the last three weeks

Nov 29, 2016 at 12:08 PM
facebook X logo linkedin

The latest American Association of Individual Investors (AAII) survey suggests bullish optimism is on a rapid rise. Specifically, the percentage of self-identified bulls increased by 3.2 percentage points over the past week to 49.9% -- its highest level since Jan. 1, 2015. For comparison's sake, the historical average for bullish sentiment is 38.5%.

Even more impressive, the proportion of bullish investors has spiked by more than 26 percentage points over the last three weeks -- the largest increase over a three-week time span since September 2010, according to Schaeffer's Quantitative Analyst Chris Prybal. Put differently, upbeat sentiment has jumped 111% in less than a month.

Below, Prybal puts the recent AAII data within its historical context. The most recent doubling of bullish sentiment represents the 11th instance since 1988, and the first occasion in more than six years. Prybal also shows how the S&P 500 Index (SPX) tends to perform following these signals:

AAII SPX 1 November 29

Based on the above, the SPX tends to outperform in the short term, after bullish AAII sentiment doubles (or more) over a three-week time period. For example, the average one-week post-signal return is 0.5%, versus an anytime one-week return of 0.2%. Going out four weeks, the post-signal SPX gain is nearly 2%, roughly doubling the typical at-any-time return.

However, the S&P's longer-term prospects are murkier. On average, following a jump in bullish AAII sentiment, the broad-market index has advanced 1% over the next eight weeks, easily underperforming the anytime eight-week gain of 2%. Going out to 26 weeks (or a half-year), the trend continues with post-signal and anytime gains of 2.8% and 5.6%, respectively. Here's a look at the SPX over the last 30 years, with three-week bullish rises indicated in orange:

AAII SPX 2 November 29

On a related sentiment note, the National Association of Active Investment Managers (NAAIM) exposure index just increased for its third consecutive week. The average reading of 86.6 is well above the historical norm of 59.4, and is also the highest level since early September. In other words, it's not just individual investors who are growing bullish, but also money managers.

NAAIM SPX November 29

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI