INDICATOR EXPLAINER · #06
AAII Retail Sentiment — when the crowd tells you what to do
Every week since July 1987, the American Association of Individual Investors has asked its members a simple question: are you bullish, bearish, or neutral on the market over the next six months? Nearly 40 years of data reveal a striking pattern — retail investors are famously wrong at extremes.
Today's reading
Same number you'll see on this component's card on the main dashboard.
What is the AAII Sentiment Survey?
The AAII survey is the longest-running weekly poll of individual (retail) investor sentiment in the United States. Each week, thousands of members answer the same question. Results are published every Thursday. The three percentages (Bullish, Neutral, Bearish) always sum to 100%.
The single most-watched metric is the Bull-Bear Spread:
Bullish % − Bearish %. High spread = crowd is optimistic.
Low spread = crowd is scared.
Historical distribution (1987–2026)
- Median +7% (retail is mildly bullish on average)
- 10th pct −17% (unusually bearish)
- 90th pct +28% (unusually bullish)
- Extreme low below −30% (deep pessimism)
- Extreme high above +30% (euphoria)
How BATS uses AAII
AAII is treated as a contrarian indicator. When the crowd is extremely bearish, forward returns have historically been strong (they were wrong to sell). When the crowd is euphoric, forward returns have historically been weak (they were wrong to be greedy).
Same direction convention as our other components: extreme retail bearishness → LOW BATS (buy signal), extreme retail bullishness → HIGH BATS (careful).
| Bull-Bear Spread | BATS points | Bucket |
|---|---|---|
| Below −30% | 5 | Extremely Oversold |
| −30% to −15% | 5 – 25 | Oversold |
| −15% to 0% | 25 – 50 | Slightly Bearish → Neutral |
| 0% to +15% | 50 – 70 | Neutral → Slightly Bullish |
| +15% to +30% | 70 – 90 | Bullish |
| Above +30% | 95 | Extended |
Note: AAII is a weekly survey. The BATS dashboard carries the most recent reading forward each day until a new one arrives (typically Thursday afternoons).
Does it work? — Historical backtest (1987–2026)
For every weekly AAII reading since 1987, we compute the AAII component of the BATS and measure how the S&P 500 actually performed 6 and 12 months later. 2,000+ readings across every major market regime.
What the data actually says
Three findings from the 39-year backtest — and one is the classic contrarian confirmation:
Extreme bearishness = buying opportunity.
When the Bull-Bear spread was below −30 (retail investors deeply pessimistic), the S&P was up an average of +13.0% over the next 12 months, 77% positive (n=117). When it was between −30 and −15, forward returns were +12.4%, 80% positive (n=181). Both above the +9% baseline.
Takeaway: The crowd's fear is your opportunity — not on any given day, but reliably over the following year.
Extreme euphoria = the worst returns.
When the spread was above +30 (retail extremely bullish), forward 12-month returns averaged just +4.5% with only 69% positive (n=244). That's dramatically worse than the +9% / 75% baseline — the worst bucket of any indicator we track.
Takeaway: When your neighbor is bragging about their stock picks, the market is often close to a top.
Middle of the range is noise.
When retail sentiment sits in its normal range (spread between −15 and +30, which is where it lives 80% of the time), forward returns track the baseline. Nothing to see here.
Takeaway: AAII is a specialist — it earns its keep only at extremes. When it fires, listen. When it doesn't, look elsewhere.
How to use this information
- Watch the extremes, ignore the middle. Bull-Bear spread inside ±15 is noise. Outside ±15 is worth paying attention to. Outside ±30 is unusually significant.
- Not a timing tool. "Retail is euphoric → sell tomorrow" doesn't work. Retail extremes can persist for months. The signal is about the next 6–12 months, not the next week.
- Confirm with other components. When AAII flags retail bearishness AND the VIX is elevated AND breadth is narrow, the case is far stronger than any single signal.
- Weekly data means slow updates. AAII publishes each Thursday. The BATS dashboard shows the most recent reading, holding it steady between updates. Don't expect this component to change day-to-day.
- The "meaning" of extremes drifts. Retail participation has grown dramatically since 2020. What used to be an extreme reading may not carry quite the same signal today — but the historical pattern remains a useful baseline.
Reminder: None of this is investment advice. Historical patterns are not guarantees. Always do your own research or talk to a financial professional.