Computerized Investing > October 2010

Sentiment goes from one extreme to the other

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Investors seem to have returned from the summer vacation in good moods, as the Wilshire 5000 gained over 5% since our last monthly e-newsletter. As investment sentiment measures tend to be lagging indicators, it is not surprising that the rebound in the market led to similar improvement in investor attitudes, as born out by AAII’s Sentiment Survey. After reaching its lowest point since March 2009, bullish sentiment recovered to levels not seen since August of 2009, peaking at 50.9% on September 16. While bullish sentiment has since returned to more “normal” levels, investor sentiment, for the time being, is generally positive.

The quarterly earnings season that is about to begin in earnest will be an excellent barometer of the state of the economic recovery, and be a key driver of the market and investor sentiment in the coming weeks. Until the market can get a better handle on whether a solid foundation for recovery is being laid or whether it is merely a pillar of sand, the market—and investor sentiment—will more than likely be easily swayed by short-term developments.

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