Author: David Templeton, CFA, Principal and Portfolio Manager, HORAN
The American Association of Individual Investors reported a jump in bullish sentiment to 56.9%. This is the highest bullishness level since the reading reached 59.7% for the weekly reporting period ending January 4, 2018. As the below chart shows, higher levels of bullishness have a tendency to occur near market tops; however, the pullbacks can be brief or short lived. Also, bullish sentiment can get to higher levels as happened in 2003 when bullishness was reported in the low 70 percent level.
For comparison purposes, the below chart shows bullishness levels during several prior market bubble periods. Readers should note though, sentiment alone is not necessarily a good timing tool; however, it can provide important insight into investor psychology.