I will point out observations of investor sentiment when it gets asymmetric: tilted to one extreme or another. In doing so, we’ll see how investors tend to oscillate between the fear of missing out and the fear of losing money. That is, after stock prices go up, they’ll become complacent and overly optimistic. After prices go down, they’ll fear losing more money. Over time, I observe investors oscillating between these two fears. Or, you could call it fear and greed. The problem is, they feel the wrong thing and the wrong time. We’ll observe that through empirical evidence of the investment sentiment polls taken by AAII as it happens over time. Sometimes falling prices warrant some fear, and rising prices are a good thing. The point of our observations about the pendulum of sentiment is to show how they feel the wrong thing and the wrong time and most people don’t actually act on it well.

• When investor sentiment gets extremely bearish, it’s usually after stocks have fallen and stocks often go back up.
• When investor sentiment gets extremely bullish, it’s after stocks have gone up and stocks eventually decline.

The AAII Investor Sentiment Survey Results as of 8/21/2013 shows investors are bearish.

This week’s AAII Sentiment Survey results:
  Bullish: 29.0%, down 5.5 points
  Neutral: 28.2%, down 9.1 points
  Bearish: 42.9%, up 14.7 points

Long-term averages:
  Bullish: 39.0%
  Neutral: 30.5%
  Bearish: 30.5%

The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Only one vote per member is accepted in each weekly voting period. To learn more, visit: AII Investor Sentiment Survey