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Although the S&P 500 has dropped in the past week, sentiment has surged with the latest survey from the American Association of Individual Investors (AAII) showing 42.2% of respondents reporting as bullish.  That is up 9.1 percentage points from the previous week. While not large enough to earn any long-standing superlatives, it marks the largest one-week jump in bullish sentiment since July 20th when it increased 10.4 percentage points, and indicates a significant increase in bullish sentiment.

Bearish sentiment in turn was lower at 29.6%. However, the weekly decline was much smaller at only 4.9 percentage points. Although the jump in bullish sentiment did not borrow heavily from bears, the 4.9 percentage point drop was the largest one-week decline since early June.

Additionally, the drop in bearish sentiment was enough to lift the bull-bear spread back into positive territory. That follows two straight weeks of negative readings. While not as elevated as the late spring and early summer, at these levels, the bull-bear spread is indicating more bullish sentiment than has been observed for much of the past year and a half.

Using the latest AAII data in combination with the findings from the sentiment surveys from Investors Intelligence and the NAAIM Exposure Index, our weekly sentiment composite indicates that investors hold slightly more optimism than has been the historical norm as the index is slightly positive. That compares to negative readings the prior two weeks and extremely bullish readings as recently as the second half of July.

In last night’s Closer, we included a look at this composite with the addition of another sentiment indicator: the TD Ameritrade Investor Movement Index.

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