The AAII Sentiment Survey is an underrated indicator. It's one of the best measures of a market that's way too one-sided.
The last time I wrote about it was on September 30, when I highlighted it was at 60% bearish for two weeks running for the first time in history. The stock market bottomed two weeks later.
Now -- after a +20% rally in the S&P 500 -- the tables are beginning to turn. Sentiment jumped this week and is now 44.5% bullish (up from 29.1% a week ago) and above the historical average of 37.5% for the first time since February.
To be sure, we're coming off 15-straight weeks of above-average bearishness for stocks in part due to the banking rout, but you can see money going to work in various sectors this week. It looks to me like buy-the-dip is back.
As an aside, I'm always amazed by the amount of bearish sentiment overall. The average is 31% and this is among somewhat sophisticated investors. That's in the United States, which has been in a mega-long-term bull market for as long as anyone in the survey has been investing.
Just yesterday, Stanley Druckenmiller -- one of the all time greats -- said he had never made money shorting. And what about all those people featured in the movie The Big Short? Have a look at their track records since the housing collapse.
From where I stand, there are only two positions in equities: Neutral and bullish. Maybe once in awhile you'll be early and see something like covid coming (like I did) but it's still extraordinarily difficult to make money in shorts when you have the Federal Reserve announcing unlimited daily QE days after the pandemic hit the US.
