The S&P 500 has been in rebound mode over the past week, having now rallied 3.45% off the October 3rd low. In turn, sentiment has taken a distinguished bullish turn to start out the month of October. That compares to last month when sentiment took a more bearish tone as we discussed in Tuesday's Closer. On top of a 2.2 percentage point increase in bullish sentiment last week, this week saw the percentage of respondents to the AAII survey climb another 9.9 percentage points. That brings bulls up to 40%, the highest since the first week of September, and back above the historical average (37.5%).

Bearish sentiment saw a corresponding pivot lower. Bears are now down to 36.5% versus the recent high of 41.6% last week. While that is only the lowest level since the week of September 21st, it was the largest week-over-week drop since June 8th. Additionally, that decline has not been enough to bring bearish sentiment back to normal levels as it is still 5.43 percentage points above the historical average.

That has resulted in the bull-bear spread tipping back into positive territory for the first time in a month.

Of course, the drop in bearish sentiment was not nearly as large as the increase in bullish sentiment. That was because there was a notable decline in neutral sentiment. That share of respondents reporting that they expect unchanged prices fell by 4.8 percentage points this week.Not only was that the fourth week-over-week decline in a row, but it was also the biggest one-week decline since July. Now at 23.5%, neutral sentiment registered its smallest share in just under one year.

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