AAII Bulls Retreat to Pre-Election Lows

Stocks have been on a roll since the early November presidential election in the U.S., with the S&P 500 Index (SPX) up 10% from its Nov. 8 close, and fresh off a March 1 record high. However, the rally -- which has been inspired by President Donald Trump's promises of big infrastructure spending, tax reform, and deregulation -- has lost a bit of steam lately, and as Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook, "skepticism is growing with regards to the 'Trump Trade.'"

One sign of this increasing caution is a recent rise in short interest on the S&P, PowerShares QQQ Trust (QQQ), and Russell 2000 Index (RUT). Additionally, Schaeffer's Quantitative Analyst Chris Prybal recently noted that the latest American Association of Individual Investors (AAII) weekly sentiment poll showed the lowest reading on bullish sentiment since Nov. 2 -- just ahead of the U.S. election -- down 1.9 percentage point to 28.3%, well below the historical average of 38.4%. Plus, AAII bulls haven't been north of the 50% marker for 118 weeks, the longest streak on record.

Echoing this indication of growing pessimism, the number of "neutral" respondents edged down 0.3 percentage points to 32.1%, while self-identified bears surged 2.2 percentage points to 39.6% -- significantly higher than the historical average of 30.3%. Prybal notes that the collective number of neutral and bearish respondents is also at its highest perch since Nov. 2. What's more, the 10-week moving average of AAII bears has now surpassed that of AAII bulls.