Investors Intelligence Sentiment Indicates Extreme Optimism

By on June 2, 2014

Charlie Bilello, Director of Research at Pension Partners, LLC, highlighted that investor sentiment as measured by Investors Intelligence is at the 94th percentile indicating extreme optimism.

Bilello points out why this could be a problem for the bulls:

Isn’t confidence a good thing which will only lead more and more people to buy in, aka the “greater fool”? It certainly can be and most of the time sentiment data is just noise. However, last week we moved past the noise level to an extreme in one of the longest running sentiment polls: Investors Intelligence. Last week’s poll showed 58.3% Bulls and only 17.3% Bears. The spread between Bulls and Bears of 41% is higher than 94% of historical readings and at a level from which further equity gains were much harder to come by.

And where extreme sentiment has led to lower returns:

Let’s have a look at the data. As you can see by the tables below, the forward S&P 500 returns following a Bull-Bear spread of greater than 40% are significantly below average. The average 26-week (6-month) and 52-week (1-year) S&P returns following such extreme readings are only 1.2% and 1.6% respectively. This compares to average 6-month and 1-year returns of 4.0% and 8.3% in all time periods.

Bilello covers much more (including the tables) in the source link below.

Bulls minus Bears

Source: Pension Partners

3 Comments

  1. Cole Ostamie

    June 3, 2014 at 3:21 pm

    What does this blue line mean? What does it mean?

  2. Ezra Elijah White

    June 5, 2014 at 12:24 pm

    It means you’ll lose your ass if you’re up to your ears in stock market shares.

  3. Swayze, Patrick

    June 17, 2014 at 6:47 pm

    It’s basic dog psychology, if you scare them and get them peeing down their leg, they submit. But if you project weakness, that promotes violence, and that’s how people get hurt.

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