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BEARISH SENTIMENT SPIKES TO A 3 MONTH HIGH

5 February 2010 by Cullen Roche 3 Comments

Bearish sentiment continued to spike in the latest week according to the AAII sentiment survey.  The latest bearish reading surged 6.4% to 43.1% – the highest reading since early November.   Bearish sentiment has jumped 16% in 3 weeks.   Despite this, the levels are not excessive compared to the historical averages:

“Though bearish sentiment is currently well above the historical average of 30%, it is not at levels that would suggest it is excessive. For example, in February 2009, bearish sentiment crossed above 55%. (It reached a 12-month high of 70.3% on March 5, 2009.)  Therefore, while there is a possibility it could be nearing a short-term peak, it would not be surprising to see bearish sentiment remain at or rise from current levels.”

Bullish sentiment fell to 29.2%, but remains off of levels that were seen at prior major market lows:

Source: AAII

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Comments
  • Duncan

    Are you still positive in the near term? we seem to be returning to the Risk ON/ RIsk OFF trade – earnings and company differentiation seem to matter less at the moment.

    02/05/2010 at 2:08 AM
    • Cullen Roche TPC

      Duncan, I have been mostly cash since the Obama regulatory announcement – http://pragcap.com/three-things-i-think-i-think-5

      I do think there is a buying opportunity approaching us, however, as we get some more clarity on some of the issues that are spooking markets. I am not convinced that this is the big leg down that many are assuming it might be.

      02/05/2010 at 6:08 AM
  • Alex

    the market continues to be traded on a short term basis by macro funds. Credit investors have been using the equity markets for liquidity since there isn’t any in the sovereign CDS market.
    Equity investorrs have been mostly sidelined, but we see institutional buyers getting much more excited about levels…..wouldn’t buy the market until we establish an uptrend, happy to miss out on 5%

    02/05/2010 at 6:37 AM