Each week the Investors Intelligence service conducts a survey of some 150 financial newsletter writers to determine whether they are leaning bullish or bearish in their opinions to subscribers. The resulting Investors Intelligence Survey compiles the data to arrive at a weekly percentage of bulls vs. bears. The Survey is considered a contrarian indicator, since extremes in either direction are sometimes signals of reversal of the market’s current trend, even if only in the short-term. We like to monitor this survey as it tends to be a fairly reliable indicator. Below is a current chart of bearish sentiment followed by a chart of bullish sentiment.
While current bullish sentiment has not yet reached an extreme reading compared to the past five years at a level of 51.6%, the current bearish sentiment reading of 15.6% is the lowest level in the past five years and has even dropped below the low reading recorded at the market peak in the Fall of 2007. Of course, this doesn't mean the markets are headed into a steep decline in the near term. While this outcome is certainly possible, the readings tell us that now is not the time to be overly enthusiastic as the risk/reward profile is skewed more towards the downside and odds favor a pull back or correction. If a pull back does happen, we should expect these numbers to reverse direction with bullish sentiment decreasing and bearish sentiment increasing, creating better risk/reward opportunities as investors become less bullish and more bearish.
