We use investor sentiment as a contrarian indicator of the direction of the stock market. And this week’s low bearish sentiment means investors should be cautious. The most recent Investor Intelligence Bears/Bulls poll reports bearish sentiment at a very low 17.2%. Virtually unchanged from the previous report. Bearish sentiment below 20% historically means the market has not bottomed for broad buying.
Meanwhile the difference between bullish and bearish sentiment narrowed to +30.4%, which was better than previous polling but still in the cautious zone (see chart). Bullish sentiment tumbled all the way down to 47.6%, from 55.3%, but given high market volatility and low bearish sentiment we believe caution remains the watchword.