What This Survey Reveals About Investor Sentiment

Swings in mass emotions tend “to follow a similar path each time around”

By Elliott Wave International

After a multi-month rally since the March low, many stock market investors remain optimistic.

Here are a sample of October headlines:

• [Major bank] lays out 3 reasons why the stock market will continue to rise … (Business Insider, Oct. 11)
• ‘Get long’ — … stocks higher no matter who wins election (CNBC, Oct. 12)
• … Study Reveals Retail Investors Remain Bullish … (businesswire.com, Oct. 14)
• Big Money is Bullish … (Money & Markets, Oct. 21)

This continued financial optimism is not surprising. Indeed, it’s to be expected at this juncture in the stock market’s trend.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.

And, right now, it appears the current mass emotion of optimism has progressed to an extreme.

The Oct. 21 U.S. Short Term Update, a thrice-weekly Elliott Wave International publication which focuses on near-term forecasts for major U.S. financial markets, showed this chart and said:

This week’s Investors Intelligence Advisors’ Survey has pushed to 59.2% bulls, just shy of the September 1-2 extreme. The red arrows on the chart show the four prior instances since September 2018 when the II survey was at a similar level or slightly higher.

The Investors Intelligence Advisors’ Survey doesn’t mean that the stock market will make a dramatic turn on specific day in the near future. Market history repeats, but not exactly.

The best approach at this juncture is to keep a close eye on the market’s unfolding wave structure.

Let’s return to Elliott Wave Principle: Key to Market Behavior:

No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out. …

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