AAII Bull Ratio generates a Compelling Signal

Key points:

• Every twist and turn in investment sentiment is closely analyzed by the universe of market analysts, for clues regarding "too much" bullishness or bearishness among investors
• But sometimes it pays to look at the underlying current and not just the waves on the surface
• The 50-week moving average of the AAII Bull Ratio recently crossed a significant level, suggesting a resurgence in investor bullishness
• Significant market gains have typically followed the signal detailed here; however, the signal itself is best considered as "weight of the evidence" and not as a "set it and forget it" buy signal

Bullish investors are essential to sustaining a bull market

As purveyors of investor sentiment, we often feel a twinge of anxiety when investor sentiment becomes overly bullish. Nevertheless, it is probably a good time to be reminded of:

Jay's Trading Maxim #190: Remember, bulls are needed to sustain a bull market.

One investor sentiment measure for which many uses have been developed over the years is the AAII Bull and Bear Sentiment Survey. The AAII (American Association of Individual Investors) is a non-profit organization headquartered in Chicago and was founded in 1978. Their stated mission is: "assisting individuals in becoming effective managers of their own assets through