(RobertSinn) “Notice that bullish sentiment in the AAII survey tends to serve as a leading indicator, however, it should be noted that the last time bearish sentiment was as low as it is now the S&P 500 ($SPY) suffered a 4-5% pullback in mid-July..”
“I can honestly state that one of my biggest mistakes during the past month was not paying enough attention to the record low net long exposure of hedge funds and the record bearish [NAAIM] sentiment of active managers as seen below..”
“Sentiment is just one tool among many in a market participant’s arsenal, however, it increases in importance at market extremes/inflection points..”
Other sentiment readings to keep an eye on include COT (Commitment of Traders) exposure – where Large Speculators (ie. hedge funds). I’ve often noticed that when Large Speculators on the COT reports are heavily bullishly or bearishly positioned, it tends to lead to sharp reversals in the not-to-distant future. Last year’s Euro crisis was another great example of this.
One more great site for Daily Sentiment Data is Market Harmonics. They offer free proprietary NASDAQ Daily Sentiment Index, Rydex Nova/Ursa Sentiment Indicator (S&P 500 Sentiment), and Option Buyers Sentiment Gauge (OBSG) charts, to name just a few.