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No Signs of Capitulation from Sentiment Models

Published 10/09/2011, 10:10 PM
Updated 07/09/2023, 06:31 AM

After the difficult September that we saw in equities and other risky assets, it isn't surprising that investor sentiment has tilted to the bearish side. The latest AAII sentiment survey shows the bull-bear spread at -10.47%. This was an improvement from the previous week and much better than the -22.67% reading two weeks ago.

The chart below from Schaeffer's Research tells the story. Despite the tick up in bullish sentiment, there are more bears than bulls. This would normally be interpreted as being contrarian bearish.



Still buying the dips:

On the other hand, the September AAII Asset Allocation Survey showed that investors added to their stock positions. Stock allocations were up 2.5% in the month to 57.8%. Both cash and bond allocations declined.

These are not signs of a capitulation-washout bottom in stocks! Despite the terrible investor sentiment survey readings, individuals continued to buy the dips.
Analysts who just follow the sentiment surveys for contrarian signals should be wary. Watch what they do, not just what they say.




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