There was a dramatic shift in the sentiment readings this week with many of the previous bulls throwing in the towel 'en masse'. Their number fell more that 10% and they are now far outnumbered by the level of the bears.
The bulls crashed all the way to 31.1%, from 41.9% last week. That is their lowest readings since October 2002 when we saw 28.4% on the 11th and 31.0% on the 4th. That was smack at the last bear market bottom which lasted from that July through early March 2003. That period proved to be an excellent entry area as the Dow Jones Industrials wer trading around 7,500 and preparing for a multi-year bull market.
The bears jumped up to 43.3%, from 36.6% last week. Their latest
reading is just above their peak from 12-October-2002 when they
totalled 43.2%.
The market turned up quickly after those readings in 2002 and the
bulls surged to 50.6% just four weeks after their low reading as the
DJIA rallied over 700 points. In that same time frame the bears fell
down to 28.1%.
The remaining 25.6% of the advisors are classified as correction.
There number rose from 21.5% a week ago.
The current sentiment readings are great and very supportive of the
idea that a broad new market bottom is in the process of forming.
The sharp increase in advisor pessimism could be blamed on tumbling
index action and the increased belief that the economy is in a
recession. All three primary stock averages continue to trade below
their declining 200-day moving averages and show penetrations of major support. Last week's acceleration to the downside was enough to cause the latest shifts.
The spread between the bulls and bears is -12.2%, a sharp drop from
+5.3% a week ago. This is also the first negative difference since
October 2002, shown on the chart as the prior move below the 'O' line.
The recent readings remain bullish. There has been and an almost +55% shift in the sentiment spread from the early October 2007 market high. That included a very negative +42.4% difference.
1 comment:
what is the sentiment readings? AAII investor survey or any other? BTW, right before market rebounded on Tuesday I got a msg "Bear in mind that we're getting into a period of substantially greater volatility. As a stock market indicator, we used to get really excited whenever the upside-downside volume was a 9:1 ratio. Invariably it happens on sell-offs because fear is a more urgent emotion than greed. So whenever you had a 9:1 day, that was really pretty meaningful. To put this in perspective, in the period of 1994 to 2000, we had a total of 15 of those 9:1 days, in a space of seven years. We've had 32 of them in the last year. "
I am not sure if we are in a long term bottom processing. I want to say yes by put/call ratio, Arms Index, etc. However, they behaves differently in a bear market scenario. Considering http://bespokeinvest.typepad.com/bespoke/2008/02/long-term-inter.html and "As the S&P 500 has been making new lows, its p/e ratio has been making new highs! Unfortunately, that's what happens when earnings decline at a faster pace than the index does. And it's pretty hard to fathom something falling faster than the market in this environment.", I suspect that we have to wait until 2nd half of 2008.
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