Sentiment Surveys Better at Predicting Market Bottoms Than Tops

Bearish sentiment from sentiment surveys like AAII can help identify market bottoms, but high bullish sentiment doesn't reliably predict tops.

At market bottoms, AAII bearish sentiment and NAAIM exposure get very high and low relative to historical averages.

At market tops, sentiment measures tend to stay closer to their historical averages.

Using sentiment to call bottoms works well, but using it to call tops is less reliable.

Contrarian indicators are better at identifying overly pessimistic bottoms than overly optimistic tops.