As stocks set records, so does investor neutrality

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Talk about being stuck in neutral. According to the American Association of Individual Investors investment survey, the extent and duration of investor neutrality is setting new records.

For seven weeks, from the week ended April 9 to the week ended May 21, more than 45 percent of the group of investors surveyed by the AAII said they were neither bullish nor bearish but "neutral on stocks." That sets a record in a survey that has been conducted since 1987.

Specifically, for the week ended May 21, neutral sentiment came in at 50 percent, leaving both bullish sentiment (at 25 percent) and bearish sentiment (no extra points for guessing that the bears totaled 25 percent as well) below historical averages.

There may be something seasonal to the neutral trend, given that the prior record for weeks with more than 45 percent of investors coming up neutral was set between May 13 and June 17 of 1988. But of course, stocks have done next to nothing all year, with a mere 7.5 percent range—from intraday high to intraday low—for the S&P. Meanwhile, the VIX, which measures expectations of future market volatility, found the lowest levels of the year on Thursday. And all this as stocks continue to narrowly set record highs.

Read More S&P 500 ekes out record close

"Most sentiment indicators are lagging. They tell you more about what just happened than what will happen," Eddy Elfenbein, the editor of the Crossing Wall Street blog, told CNBC. "Neutral reading? People are finally catching on that the VIX has barely moved in several weeks. As the future becomes more uncertain, neutral sentiment will fall."

For Boris Schlossberg of BK Asset Management, market sentiment is "flashing yellow to me, only for the simple reason that we're just getting way too complacent. There is a lot of herding behavior in the market right now, and neutral is just an expression of that in some ways, because there's just too much group-think."

Yet some traders take the Swiss-style market outlook as a positive.

"I hope that sentiment doesn't change, because neutral sentiment is actually bullish for the market. It dovetails nicely with the economic data that we're getting, which is essentially not-too-hot, not-too-cold, that's consistent with a slow grind higher in the S&P," said Rich Ross, head of technical analysis at Evercore ISI. "I like what I see in the S&P."

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