Bullish Sentiment Drops to Lowest Levels Since March 2009

In another sign that individual investors have soured on the market, this week's bullish sentiment reading from the American Association of Individual Investors reached its lowest levels since the depths of the bear market in March 2009.  As shown below, the reading is currently down at 20.7%.  Bearishness is definitely not the contrarian view at the moment.

Comments

[jim miller]

March 2009 was the bottom before the huge rally. So the new number is very bullish

[Andrew McCauley]

Since 1987, the average percentage of Bullish individuals is 39% with a standard deviation of 11%. For the week ending 27/08/10, the Bullish percentage stood at 21%. That is over one & a half standard deviations below the total sample mean. Indeed, a very low percentage of Bullish individuals. I also note that this low level of positive sentiment coincided with a 6 week closing low for the S&P 500. By any account I would suggest that Bullishness is very Hall & Oates (She's Gone).

With this in mind I decided to test whether a change in form was likely given an AAII Bullish reading of less than 25% in conjunction with a 6 week closing low for the S&P 500.

4 weeks post this condition the average gain for the S&P 500 was 4%, Max 23%, Min -5%, St. Dev 5%, Win Rate 74%, Observations 31.

The data is statistically significant at greater than the 1 in 100 level. I suspect a rally is on the cards despite September being an unusually cruel month for equities.