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Retail investors stay cautious Add to ...

As the S&P 500 continues to flirt with three-year highs, retail investors are apparently pulling in their horns. Bespoke Investment Group reported that the latest reading on sentiment from the American Association of Individual Investors shows a decidedly bearish slant.

As of last week's reading, the bullish sentiment among these small investors was just 37.9 per cent, up from the previous week's reading but hardly - as Bespoke puts it - "ebullient"; consider that near the end of 2010, bullish sentiment came close to 65 per cent.

The sentiment readings from the AAII is often seen by observers as a contrarian indicator. That is, some believe that retail investors tend to be most bullish when the market is near a peak and ready to sell-off, and these investors tend to be most bearish when the market is near a low point and ready to rebound.

Clearly, this latest reading is a bit of a head-scratcher. The S&P 500 is at its highest level since June, 2008, prior to the worst of the financial crisis. Yet, apparently retail investors aren't enthusiastic buyers at these levels. If they're still a contrarian indicator, then it's onward and upward for stocks. And if stocks stumble from their current heights, then retail investors are not playing their part as contrarian indicators.

Follow on Twitter: @dberman_ROB


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