Briefly Noted

AAII Sentiment Survey

Our Sentiment Survey was the subject of a Wall Street Journal article last month. The article discussed the survey’s popularity, its limitations (we do not conduct a random sampling) and the correlations between the survey and market turning points.

One of the statistics highlighted in the article was the spread between bullish and bearish sentiment (aka the bull-bear spread). Research firm Birinyi Associates calculates that whenever the bull-bear spread exceeds +30 points, the S&P 500 has tended to fall over the next six months.

Ironically, on the same day the article was published (December 9, 2010), the bull-bear spread reached +30.5 percentage points (53.1% bullish and 22.6% bearish).

Though this sounded bearish, it should not have been used as the sole reason to buy or sell. You should never buy or sell stocks based on any single sentiment indicator, or solely on one fundamental or technical indicator. Rather, look at a broad array of factors, including your portfolio allocation. Ideally, you want several indicators to provide the same signal.

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