One of the most-underrated indicators in the world is the AAII Sentiment Survey, which has been running since 1987 and measures sentiment of American investors. It was a screaming contrarian buy in October 2022 in what turned out to be a sensational rally for tech shares.
Now it’s starting to look bubbly.
The level of pessimism at 19.3% is just below the late-November reading but it’s at its lowest level in almost six years. Meanwhile, bullishness is at a five-month high. Note that five months ago, the S&P 500 peaked in July before falling significantly into late October.
I wouldn’t want to be outright bearish here on a contrarian trade but I think there is a great setup for rotation away from mega-cap tech and towards value and highly-indebted sectors. That trend should extend in early January as well, with many investors who are long mega-cap tech unwilling to sell now because they won’t want to trigger a tax bill for this year.
That kind of thinking is unfolding in equities now with shares of the biggest tech names now dragging the Nasdaq Composite 0.4% lower led by NLFX down 2.3%, MSFT -2.5%, AMZN -1.7%, GOOG -1.7% and NVDA -0.9%.