Trader’s Narrative

According to the Hulbert Stock Newsletter Sentiment Index, newsletters have capitulated in the face of the recent market drop. From May 10th to yesterday, they reduced their market exposure by 42.6% points.

The last time sentiment was at this level was November 2nd 2005, when the Dow stood at 10,473. So “despite the Dow being some 655 points higher today than then, the average adviser is not any more bullish. This is an encouraging development from a contrarian point of view.”

I should point out that in mid-October the Hulbert Stock Newsletter Sentiment Index stood at negative 30.10% points. So although this recent drop in bullish sentiment is welcome from a contrarian point of view, we still have a lot of room on the downside for newsletter sentiment to reach historically extreme levels. Consider this just one small piece of the puzzle.

Watch for similar readings from the other sentiment surveys (AAII, II, etc.) in the following days and weeks.

Source: Mark Hulbert at Marketwatch.