We use investor sentiment as an important gauge on the direction of the stock market. Sentiment Numbers Mean Stock Market Investors Should Remain Cautious. The latest Investor Intelligence Bulls/Bears poll of newsletter writers show that the May and August corrections were not strong enough to create the type of negative sentiment signaling buying opportunities that traditionally occur at intermediate lows. We expect subsequent corrections will be even worse. The is because of the lack of market breadth that spurred recent market upticks, and a weakening economy. Bigger corrections will eventually turn sentiment negative enough to signal buying opportunities.
Meanwhile, the recent poll shows the spread between bulls and bears at a neutral 26.2%. Bullish sentiment was at 44.9% and bears at 18.7%. For contrarians, that low bear reading means this is not the time for major buying since there’s little cash on the sidelines to spur future stock market growth. In other words, we seem to be in a lull before the storm.