This week’s AAII sentiment indicator is getting close to an extreme, but not there yet. It seems (based on this indicator) that while we are close to euphoria (i.e. everyone back in the boat) we are not quite there yet. I would generally like to see a push above 40 on the “Bullish” read and a break below 30 on the “Bearish” read before I lighten up and look for shorts. In other words, maybe one final thrust up from some news/earnings catalyst(s). This potentially aligns with normal seasonal weakness in the month of February. As with all “rules of thumb” with indicators and seasonality they are only probabilities and barometers, not crystal balls. You can win over time using statistical advantages coupled with systematic risk management.
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