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AAII Sentiment Survey
American Association of Individual Investors
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July19, 2012The American Association of Individual Investors, AAII, publishes a weekly survey of their members to generate a weekly Bulls, Bears and Neutral set of data points. The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01AM) to Wednesday (11:59PM).  Only one vote per member is accepted in each weekly voting period. Member responses:
  • Bullish means they expect stock prices to rise of the next six months.
  • Neutral means they expect stock prices to remain essentially flat over the next six months.
  • Bearish means they expect stock prices to decline over the next six months.
For the week ending 7/18/12
 AAII Sentiment Survey results:
  • Bullish: 22.19%
  • Neutral: 36.02%
  • Bearish: 41.79%
Historical "Long-Term" Averages are:
  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

I find the weekly bulls and bears data is far too noisy for meaningful analysis so I calculate the 4, 10 and 52 week moving averages (MA) of the difference between the bulls and bears. The 52-week moving average eliminates seasonal factors that distort the data from seasonal effects such as "STS Seasonal Timing Strategy" and "Sell in May and go away."

As of 7/18/12: Weekly bulls - bears = -19.6%
AAII Sentiment Graph

You can see from my chart above of the various AAII averages vs the DOW (DJIA charts & quote)  that:
  • the 52-week MA of sentiment peaked in early 2011 then fell until the start of 2012 before moving higher.
  • the 4-week MA of sentiment fell from early 2012 through today where it is now in the rare negative zone.

Charts of the AAII (American Association of Individual Investors) Bulls minus Bears Index versus the market are key sentiment indicators for stock market technical analysis. Contrarian theory states the time to buy is when fear and pessimism are at a maximum since this usually occurs near market bottoms. 
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