continuing signs that a bottom in global markets may be being forged

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Below is another diagram of the AAII Investor Sentiment index (American Association of Individual Investors) and which reflects very bearish sentiment this week – just 22% bulls v 42% bears. The ratio of bears to bulls is 0.53.

These are levels typically seen at market bottoms, not during price advances. Looking at the chart we can see that the percentage of bulls is much lower in the last three months than it was during the first quarter. And even though the market has been rallying for about seven weeks, confidence lost during the April-June decline has not rebounded at all.

The traditional interpretation of sentiment readings is contrarian, meaning that AAII Investor Sentiment is giving a bullish signal; however, we think we should also consider that investor confidence is lower than it ought to be in the context of a rally.


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