Bullishness Jumps to Three-Year High

Individual investors were feeling especially cheery about stocks this holiday week.

The percentage of bullish individuals rose to 55.1%, the highest level in nearly three years, in the week ended Dec. 25, according to the American Association of Individual Investors. That was a jump from the 47.5% of investors who said they were bullish the previous week.

The last time that more investors said they were bullish was during the week ended Jan. 6, 2011, when 55.9% said they were bullish.

The year-end rise in holiday spirits doesn't appear to be a seasonal phenomenon. Historically, the holiday change in investor sentiment is just about evenly split. Bullishness rose during the last full week of the year in 10 of the past 20 years, and fell the other 10, according to historical AAII data.

With last week's reading, an average 39.7% of investors have said they bullish each week this year, according to AAII data. That marks a rise from last year's average of 36.5%, and remains above the average 38.1% of investors who said they were bullish each week in 2011. Individuals were more bullish in 2010, however, when an average 40.5% of investors said they thought stocks would rise in the next six months.

On the surface, the AAII reading may seem like another piece of good news for a stock market that is on track for its 50th record high in the Dow. But for many traders, the AAII is often used as a short-term contrarian indicator, with the thinking that by the time mom and pop jump in the rally, it's mostly played out.

Individuals aren't putting on their rally caps quite yet, either. Over recent years, the steadiest rise has been in the number of investors who say they are neutral on stocks. Even with last week's jump in bullishness, an average 30.7% of investors were neutral on stocks each week this year. That is a rise from last year's 30.1%, and the highest since 1999, when 35% of investors said they didn't expect big moves from stocks.