Trader’s Narrative

Today the members of AAII responded to their weekly sentiment survey with a very lopsided expectation for the next 6 months: 58% bears, 24% bulls and the rest neutral. Interestingly enough, this level of bearishness was registered after the strong close on Wednesday. So maybe people are wising up to these one day spikes, or else, they are truly very pessimistic.

The bull ratio (calculated by dividing the bulls by the sum of the bears and bulls) was last seen at these levels in early April 2005 and in mid February 2003. To find this same level of absolute bearishness (58%), you would have to go back to early 2003 :

In mid February of 2003, we saw a reading of almost 58% bears but it wasn’t until later in March that a definitive bottom was put in and a new cyclical bull born. The March 2003 bottom was put in with a 51.4% bear reading and the bull ratio was at 0.40 - higher than it is now.

The next time that AAII bearishness approached 58%, believe it or not, was way back in October 1990 :

Unlike the 2003 scenario, from August 1990 to the end of October 1990, there was an almost uninterrupted string of bearish readings above 50%. But similar to 2003, there was a dip back to retest the bottom (purple circle) in early 1991 and then the market zoomed ahead.