Where Did All the Bears Go?

That’s what Schaeffers Investment Research is asking after a huge run in the market in recent months.  Despite persistent chatter that everyone is expecting a market decline (eventually), the data shows that there aren’t many bears at all.  Here’s Ryan Detrick from Schaeffers:

“It is expiration Friday and we are usually pretty busy, so here’s a quick chart that should give the bulls pause.

With news highs being made just about everyday, one thing to be aware of is investors are getting excited.  Is this reason to sell everything?  No.  But don’t get trapped and go all in here either.  Heck, Mila Kunis just said she is investing in stocks for the first time in years.  This after being in cash during a huge bull market.

Here’s a chart of the % of bears from the Investors Intelligence survey.  What you need to know is moves beneath 20% have been very worrisome going back the past few years.  This after stubbornly not breaking this area the past month.  Could this be the final capitulation?”

I did a little sleuthing and he’s right.  There does appear to be some compelling evidence that readings below 20% tend to correlate fairly closely to market peaks.  In fact, many of the worst declines in recent history occurred with very low bullish readings.  Of course, this is just one data point in a sea of thousands, but it’s worth noting just in case the “wealth effect” decides to turn into a “poverty effect” at some point….

(Figure 1 - Investor’s Intelligence % Bears)


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Roc’s in MVt = roc’s in nominal-gDp. Roc’s in RRs (required reserves) are a proxy for money flows (all transactions). This has always been true for the last 100 years. I.e., contrary to Friedmanites, monetary lags are not long & variable. Lags in the roc’s for MVt have been mathematical constants. The proxy for real-output is 10 months. The proxy for inflation is 24 months.

    The roc in the proxy for inflation peaked in Feb (as did commodity prices). The roc in the proxy for real-output just peaked. The recent surge in economic activity is now over. The surge was due to 2 factors, the lag effect of money flows & the expiration of widespread FDIC insurance coverage (which lead to a one time acceleration in Vt).

  2. 1year from now, you’ll look back and wish you’d sold the market and bought solid gold.

  3. From your graph, it looks like 20-30% is a normal proportion of bearish advisers, and spikes in bearishness are precipitated by market declines. It is a coincident indicator, not a leading one.

  4. In that chart of Bearish Advisers I count 17 separate times that the percentage of bears dipped below 20%. Thirteen of those dips were great buying opportunities. Three, in 2007, were bad times to buy. The character of the recent dip is as yet unknown.

  5. I’ve done quite a bit of work with behavioral / sentiment metrics, and while you are correct that there is a correlation between the market and sentiment measures (ie bearish newsletter writers as in the II survey), I can assure you that the extreme readings (2 std dev+ – as we are today) mark inflection points in the Fear/Greed pendulum. I’ve never seen a reading this bullish that did not mark at least an imminment 5% selloff. Caveat emptor, as this is just one data point of many that are suggesting the same thing. Then again, Bernanke’s got our back….so BUY, BUY, BUY!

  6. Here’s still a bear ! I went short couple of things in January & February. It already produced some nice results. And there’re some indicators that suggest markets are in the process of rolling over.

  7. Sentiment from Twitter for the S&P 500 Index tends to give better results than all of the various surveys. Because it takes traders real time actions into account it tends to confirm the trend and diverge near reversals rather than being a contrary indicator. Right now it has a slight bearish bias and is waiting for the current range of 1540 and 1575 to break.

  8. But look at prices six (or so) months after the series dips below 20…the process of slicing down through the 20 line does, in fact, appear to lead intermediate-degree declines