by Bespoke Investment Group
There's an increasingly widespread view in the market that investors are becoming complacent and that all this bullish sentiment is a negative signal for stock prices. With sentiment surveys from both Investors Intelligence and AAII both showing levels of bullishness above 50%, sentiment is anything but negative. That being said, in the last several weeks we have begun to see some signs that investors are becoming less bullish as stock prices rise.
The chart below compares the S&P 500 to the Investors Intelligence weekly survey of advisor bullish sentiment. For most of 2010, the two moved step for step with each other. When the S&P 500 rose, bullish sentiment increased, and when the market declined, advisors turned less bullish. Curiously though, towards the end of 2010, bullish sentiment stopped rising even as the S&P 500 kept on chugging along. Since peaking at 58.8 on 12/22, bullish sentiment has declined by 6.6 points (11.22%). At the same time the S&P 500 has risen by nearly 6%. The big question now is, are investors correctly anticipating a correction, or will they be sucked (or as bears would say suckered) back in at higher prices?
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