The sentiment poll from the Chicago based American Association of Individual Investors asks their members each week where they think the market will be in six monts. The publication appears weekly on Thursdays. We take their bullish and bearish sentiment readings and build a ratio which you can see in the bottom half of the chart in the Market Lab section. When the reading is significantly below zero it is bullish, and when it is significantly above zero it is bearish. The trend is also important.

Interpretation:

When the opinion of most market participants is very bullish, it usually means that those participants have already established a long position in the market. It will be hard to find buyers now. From this point in time, the mood can only get worse. Chances are very high that prices will start to come back. The opposite holds if the opinion is mostly very negative. So the sentiment indicator is a typical contra-indicator.

Like any of our indicators it does not have a large meaning all by itself, only in combination with other indicators. We mainly use the sentiment indicator as a risk management tool.