'Mom and Pop' Bulls Hit a Year-Plus Low

By Brett Eversole

Everything moves faster today.

In the old days, you could carve out an information advantage as an investor. If you had early access to the newswire or connections to the right databases, it would put you ahead of the game.

Now, information is everywhere. Anyone can immediately access just about every detail that matters. And as a result, markets respond more rapidly to new information than ever before.

What once took weeks for the market to digest now takes days (or hours). Folks make snap decisions... and then move on to the next batch of news.

That means prices move fast. And investors need to be more discerning than ever about which information is just noise.

We've seen this lately in stock market sentiment. In early December, one key sentiment measure was bullish. Then it crashed to a year-plus low.

Sentiment has swung back since. But the wild action tells us that investors are scared. And that means the minor stock sell-off we've seen could already be over.

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Sentiment always swings in response to prices. But extreme swings usually only occur alongside extreme price changes.

That's what makes the recent action interesting. You see, the stock volatility we've seen in recent weeks is far from extreme...

At its worst, the S&P 500 Index was down only 4% from its December high. Yet, despite that small decline, sentiment from mom-and-pop investors completely rolled over.

That's according to the American Association of Individual Investors ("AAII") Sentiment Survey. This weekly survey asks investors whether they're bullish, bearish, or neutral on stocks over the next six months.

In early December, 48% of respondents were bullish. That bullish percentage was near the high end of the range in recent years. But in the weeks that followed, the bulls disappeared. Take a look...

The number of bulls collapsed after that early December reading. And two weeks ago, just 25% of respondents were bullish on stocks.

That's the lowest number since November 2023... when we were in the thick of a true stock market correction.

This is today's fast-moving market in action. In the past, a 4% market decline wouldn't have budged sentiment. It's hardly a big enough move to notice, let alone worry about.

Markets work differently today. Folks react first and analyze later. But once we understand this new dynamic, we can use it to our advantage.

That's because we don't have to react when others do. We can sit back, be patient, and capitalize on extremes when they appear.

That's the situation right now. Stocks barely sold off... But we saw the kind of major negative sentiment that happens when no one is left to sell. That tells me the worst of the decline is likely behind us.

We can see that in what has happened since, too. Last week, the reading took a quick swing back into bullish territory, rising to 43%.

The bearishness we saw earlier this month – and the stock sell-off that caused it – were most likely short lived...

Stocks have already regained most of their December losses. We'll likely see more upside... and even more new all-time highs soon.

Good investing,

Brett Eversole