Retail Investor Sentiment Plummets

Investor sentiment is zig zagging faster than Michael Vick outfoxing the Redskin’s defense.

On November 8, the Wall Street Journal published a piece we wrote up about the sharp rise in retail investor’s optimism about the market. At the time, the American Association of Individual Investors was reporting that 48% of its voting members expressed optimism about the next six months. The Journal’s take: Sell Signal! The following week, this optimistic group, usually 39% of those responding, swelled in numbers to a remarkable 58%, a three year high.

Investors have become fickle. Today’s number: 40%. That’s the fourth largest drop in the recent history according to Zero Hedge:

Alas, this is the kind of bipolar sentiment shift that will accompany a market in which everything continues to correlate with near precision to the dollar, and in which no bad news matter until they matter, and from all in buying the mood shifts to relentless selling.

So if it’s wise to sell when retail is bullish, does that mean buy now? The markets did open up, in part driven by the GM IPO. Even though most of the WSJ readers responding to their poll of the day had predicted (as of 9:20 AM November 18) that GM shares would be below their offering price three months from now.

Though investors can’t make up their collective minds, the actual volatility of the markets, at least as measured by the Chicago Board Options Exchange’s VIX index, has actually mellowed out in recent weeks.

Who’s betting next week is a huge recovery in AAII?


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