The jump in optimism from this group may signal the less active crowd will soon follow, propelling the rally to a fourth year, market analysts said.
Fifty-one percent of individual investors who trade frequently are now bullish, according to the Charles Schwab Active Trader Sentiment Survey, the highest level since they began surveying these clients in April 2008.
The bull market, which has caused the S&P 500 index to double, turned three years old this month.
“I think it means we will finally see retail buying,” said Mary Ann Bartels, head to technical and market analysis at Bank of America Merrill Lynch. “They have been absent from the market.”
Stocks are headed for their worst weekof the year as signs of slowing China growth and impending earnings season spooked investors slightly. The S&P 500 is still up 11 percent in 2012.
Despite the rally, overall fund flows have been anemic. Equity mutual funds have a net outflow on the year and lost another $2.57 billion last week, according to the latest data from the Investment Company Institute.
But Schwab’s survey indicated half of the respondents plan to put the bulk of their April tax refund into the stock market, a move that could be mimicked by the broader retail investing crowd as well.
Still, sentiment surveys such as these give many traders pause.
They take the contrarian side, reasoning that if everyone is bullish, there’s not many people left to turn bullish and buy into the market. Broader surveys of investor sentiment from other outlets are flashing high signs of bullishness.
“I do not believe this is contrarian at all,” said Michael Murphy of Rosecliff Capital. “The retail investor has been missing for four years and the return of retail investors, and the volume they bring, is a key to this rally continuing.”
For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.
Got something to say? Send us an e-mail at firstname.lastname@example.org and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment, but not have it published on our Web site, send your message to email@example.com.