Sentiment: A Strong Contrarian Indicator
April 23, 2020
Light equity positioning and nearly-unanimous bearish sentiment keep the balance of risks skewed to the upside. This morning’s release of the American Association of Individual Investor (AAII) sentiment poll showed 50% of the respondents identified themselves as bearish over the next 6 months. This level of bearish sentiment matches levels from December 27, 2018, which came just two trading days after the ultimate low in the S&P 500. And current levels are only 2 percentage points below the all-time record bearish extreme taken on March 26, 2020, which was just three days after the recent S&P 500 low from March 23. We continue to expect a period of technical consolidation to work off near-term overbought conditions but light positioning and bearish sentiment (strong contrarian indicators) could make this consolidation phase more about the passage of time than the decrement of price.