Bottom Line
Waiting for a correction is itself the FOMO trap — 12 consecutive NASDAQ green days alongside 8 straight weeks of below-average AAII bullishness is precisely the structure that forces the last skeptic to buy at the top.
A Quantitative Diagnosis of Market Sentiment Cycle — Where Are We Now?
Waiting for a correction is itself the FOMO trap — 12 consecutive NASDAQ green days alongside 8 straight weeks of below-average AAII bullishness is precisely the structure that forces the last skeptic to buy at the top.
The paradoxical divergence between S&P 500 all-time highs and declining AAII bullish sentiment created the need to map the 8-stage market sentiment cycle and identify the current position.
Beneficiaries — positions entered in the early-to-mid cycle, growth and tech equities. Pressure — individual investors waiting for corrections who end up chasing tops, high-cash portfolios.
Weekly AAII Bull ratio and NASDAQ consecutive green-day count — when the divergence between the two narrows, it signals the next sentiment cycle stage transition.
Market is not random. It follows repeating patterns, and structuring it into 8 stages allows for quantitative diagnosis of our current position.
A sudden external shock causes a market plunge. VIX spikes above 31, and news headlines are dominated by fear. The Trump tariff shock of February 2026 is the quintessential example, with VIX reaching 31.5 and the S&P 500 dropping -8.4% over three weeks.
Fear reaches its peak and retail investors panic sell. Bear ratio exceeds 50%, and the CNN Fear & Greed Index falls below 10. Institutions quietly begin accumulating at this stage. Early March 2026 corresponds to this phase.
Signals emerge that 'the worst is over,' triggering a technical bounce. Most investors remain skeptical, dismissing it as a "dead cat bounce." Volume is below average, with buying driven mainly by institutions and algorithms.
The bounce proves to be real and momentum accelerates. NASDAQ's 12 consecutive green days symbolize this stage. Yet a significant portion of retail investors hesitate to enter, thinking "it's already gone up too much." AAII Bull remaining below average proves this.
Repeated new highs force people to admit they were wrong. However, complete psychological transition typically takes 4-8 weeks. The S&P 500 all-time high is catalyzing this shift, but AAII data doesn't yet show full conversion.
"The correction will come" — after waiting 3, 4, 8 weeks, no correction arrives. The opportunity cost of idle cash accumulates and psychological pressure builds. This is the core mechanism of the Trap.
Unable to wait any longer, investors buy at market price thinking "I have to get in now." AAII Bull breaks above 45% and VIX drops below 13 at this stage. Historically, this point is closest to a short-term top.
Once the 'last buyer' has entered, there is no new buying fuel. Institutions quietly distribute positions, and the market moves sideways or declines.
The core driver of the 8-stage cycle is Overhead Supply. Investors who sold during the crisis form a psychological resistance wall at "I'll sell when I get back to breakeven." The process of absorbing this wall constitutes Stages ③→④→⑤, and only after full absorption do Stages ⑥→⑦ new high rallies begin.
The S&P 500 has broken through the February high resistance and reached all-time highs, meaning Overhead Supply has been fully absorbed. This implies technical resistance to further upside is significantly diminished.
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This report is provided for informational purposes only and does not constitute a recommendation to buy or sell any financial instrument. Investment decisions should be made based on your own judgment and responsibility. The analysis and opinions contained herein are based on information available at the time of writing and are subject to change.