Sentiment Surveys Better at Predicting Market Bottoms Than Tops
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Bearish sentiment from sentiment surveys like AAII can help identify market bottoms, but high bullish sentiment doesn't reliably predict tops.
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At market bottoms, AAII bearish sentiment and NAAIM exposure get very high and low relative to historical averages.
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At market tops, sentiment measures tend to stay closer to their historical averages.
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Using sentiment to call bottoms works well, but using it to call tops is less reliable.
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Contrarian indicators are better at identifying overly pessimistic bottoms than overly optimistic tops.
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