by David Templeton, Horan Capital Advisors
Today's release of the American Association of Individual Investors sentiment reading saw an enormous drop in bullish sentiment by individual investors. Bullish investor sentiment dropped 16.2 percentage points and saw the bull/bear spread reported at -35.2%. This is the most negative spread since it was reported at -36.1% on July 8, 2010. The bullish sentiment was last at this level on March 5, 2009, near the market low reached at the height of the financial market crisis. The sentiment reading is only one data point; however, investors should keep in mind this contrarian indicator is most accurate at its extreme. Today's reading qualifies as an extreme, almost two standard deviations below its average reading of 38.9%.
Additionally, fund flow data would indicate this has been a stealth rally that has left many equity investors behind. The blue bars in the below chart is the rolling one year sum of equity mutual fund flows. Not shown below, however, fund flows have turned positive for the first two months of the year.
AAII's response to survey results:
"...A total of 145 AAII members took the survey this week. This is down from the three-month average of 330 responses. A weekly “reminder” email normally sent to a sample of our members was unintentionally not sent this week. Previous drops in the number of respondents on a given week have not resulted in the magnitude of change recorded in this week’s survey, however. Furthermore, 145 is not an abnormally low number of responses for the survey...."
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