As Bearish Sentiment Plummets, Here Is How The Market Fares Following Peak Bullish Extremes

Tyler Durden's picture

As Bespoke points out, bearish sentiment as calculated by Investors Intelligence in the past week plunged by a whopping 32 from 23.1% to 15.7%. This is the most bullish since late 2009. Empirically speaking, this is bad news for the market, as there are virtually no contrarians left and everyone is on the same side of the boat. As John Lohman demonstrates, the returns 1, 3, 5 and 10 weeks following a more than 25% drop in bearish sentiment are as follows: -0.92%, -2.07%, -1.99%, and -1.95%, respectively. Yet of all these, only the drop in November 2009 was actually executed in an environment of central planning such as the one that continues through today: and in that one the market actually rose 0.01%, 1.38% and 3.22% in the 1, 3, and 5 weeks following (and dropped 1.6% ten weeks later). Will the current shift in sentiment revert to the average, or will the market continue to price in aggressive Fed central planning? Stay tuned and find out.

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Johnny Lawrence's picture

When all the experts and forecasts agree, something else will happen.

the mad hatter's picture

stock market? who still plays in that rigged casino?!

Highrev's picture

Looks like some of the best results happened during bear markets.

Go figure.


That having been said, if you were to press me, I'd have to say that we're probably moving more along a parallel of 1998 or 2000. But we're not exactly in a bull market, are we? So maybe Aug. 2002?

We're not in a bull market are we?


tallen's picture

The only way is UP! When the fed keeps on churning out those freshly printed dollars.

I am more equal than others's picture

Those freshly printed dollars have to paid back.  When the market meets reality and the Fed is no more - will be like the ugly girl on prom night.  Alone, no way to get home, and wishing we hadn't dropped those big girl panties for that bernaked boy.  In 9 months that suprise package will be sucking those A cups dry and saggy.

tmosley's picture

When predicting markets, yes, when predicting government interventions, not so much.

American Dreams's picture

If your the Johnny Lawrence that used to be an ML Green Mountain jockey then you have been around long enough to know that the Fed hasn't ever been this knee deep in the markets and that even the simplest reversions to the mean do not apply in this environment.  Just sayin' - btw if you are the true JL then much respect brother, hope you are well.


there be no shelter here

TriggerFinger's picture

It wuz a be-uteefull day. I was jes settin on the back stoop anna drankin a big glass o ahs tay when sumpthin sploded. Doc sez it wuz the rot anteer lobe o ma brain. He sez I gotta drank whiskey aforin brekest, and all day long everday til the swellin stops. I told Doc he wuz crazy as shit anna that all I needed ta do wuz BTFD

jkruffin's picture

Nothing beats MAGIC FUTURES!!!!!!! lol

kavaron's picture

Like most other indicators, sentiment strategies stopped working on 2011.

Cdad's picture

Correct.  All correlations have stopped working.  The only elements left to contemplate are how much free money is sent to its death in the market, and where Street expectations are.  You can get info on the first, but on the second, you are not in the club.

Therefore, there is nothing left to trade but the fundamentals of a broken economy however temporarily held in a state of suspended animation...with expiration set for June.  So good luck trading that.

Johnny Lawrence's picture

They didn't matter during the real estate boom...until they did. 

ZeroPower's picture

We were all bearish Q2 '09 and look what happened.

Calvin Jones and the 13th Apostle's picture

The market won't drop until QEII ends.  Once The Bernank pulls away the punch bowl, we'll see something closer to reality and less fantasy.

rubearish10's picture

Probably not that simple, especially if everyone thinks so. It will not end but the definition and structure of USD fleecing will change, allowing this calamity charade to continue.

cosmictrainwreck's picture

speaking of that....what's with gossip that fed gov's think to end QE "early"; just more smoke? any effect (besides Dow UP another 38)?

treemagnet's picture

It can't crash till it goes straight up, so we're close.

RobotTrader's picture

With consumer discretionary names tied to housing rocketing up 9% to new world record highs, it gives me some pause about shorting anything right now.

Also, banks were very strong, and PIIGS banks were even stronger.  So today's sellof was probably a headfake.

The dollar keeps selling off and gold still has a good bid.  Still "Risk On".


Id fight Gandhi's picture

Bbby is questionable at best. Nobody is shopping for furnishings elsewhere. I bets the books are cooked here.

But whatever it will rally because that's what fraud does.

slaughterer's picture

Didn't Harry Wanger sell his urinal cookies through this store?  No wonder they are doing so great...

disabledvet's picture

Was the point of QE to get the stock market higher or keep interest rates low?  I'm still confused.  How can we have both?

random shots's picture

You are starting to sound like CNBC, Tyler.

Looking at the chart, there has been only one time in eleven previous instances where the market fell 5% or more 10 weeks later. And in that one year (1998) the S&P 500 was up more than 20% for the year. I am not saying BTFD but come on...

I'm sure all you "hedge fund guys" in the comment section who arre managing your lunch allowance with 10x leverage are spooked by a 2% move...

bogey4's picture

I'll criticize TD when I consider it warranted, but this post merely points out some statistics... with little or no opinion given.

Eternal Student's picture

Well, I question the statistics, unless I'm misreading what was written. It looks like the numbers at the bottom of the chart are for all of those periods. And not the "... weeks following a more than 25% drop in bearish sentiment."

If you look at the numbers where there was a greater than 25% drop, for the first week, I get:

(.91 + 1.61 - 0.8 - 1.38 - 2.62) / 5 = -.46 %

which is actually better than the -0.92 % claimed. So I assume the original statement meant "more than a 20% drop", not 25%.

So, if I've missed something here, please let me know.


FOC 1183's picture

You are right - the study looks at weeks where sentiment fell by 20%, not 25. So, the results are as stated.

Eternal Student's picture

Thanks for the double-check.

InconvenientCounterParty's picture

Central planning does not include the mechanism of it's own termination.

It's like the Borg -- a one way ticket.

spongeBOB's picture

BBBY forcasts 50% drop in EPS for Q1 from Q4 and shares rally 7%.

1fortheroad's picture

It must be the new math kinda like the captcha.


spongeBOB's picture

No, its the new scam. Lower estimates + beat lowered estimate = Shares rally

twotraps's picture

Unprecedented intervention, completely insolvent banks and the govt actively demonstrating that absolutely no financial progress will ever be made............but lets just use historical data to extrapolate where the 'market' will be given the circumstances!  There are no data points, and its not a 'market'.  These are big problems.  If anything its a monument to what an awesome job the US has done to foist the greatest scam ever in forcing, I mean strongly suggesting, the planet be run with Dollars.  Can you imagine investing billions of pension money in govt bonds of a country that says its going broke?


Honestly, we cannot expect anyone in Washington to balance the Pretend Account that is the entirety of the US Govt.  Its a fantasy account used for political purposes only.  I love it when people argue that Clinton balanced the budget, really?  We are not going to change Washington, not in this comment, this article and not in many elections...sadly.  

Note to self's picture

Clinton's budget closed by accident - all the newly enabled day traders making a fortune during the dot com spike had to pay a s**tload in short term capital gains.  Clinton never saw it coming, but accepted it happily.

Urban Redneck's picture

Clinton's budget gap was not closed by accident or by the congress.  It was closed by Rubin (GS) & Greenspan trading the 30 yr fixed mortgage on America for a short-term ARM liar loan.  It worked so well they sold the idea to a whole generation of American home buyers.  

disabledvet's picture

Ask the EU.  They're buying Portugal.

unky's picture

is there a typo ? u mean 21.3 %, right ?!

Truthiness's picture

I would not be shocked one bit if we see Dow 14k by December. Nor would I be shocked if we see Dow 11k. The truth is none of us know what the market is going to do. Too many variables.

But I think it's safe to say Ryan's budget isn't going to become law anytime soon and nor will anything comparable from the democrats. Thus the debt burdens and their corrolary outcomes will continue to snowball. 

We're f**ked bitchez! 

Id fight Gandhi's picture

I would not be shocked to see Dow 8000 or 14000 this year. Could go either way based on the exact macro fundamentals. That's scary.

buzzsaw99's picture

There is no sentiment, there is only the bernak.

slaughterer's picture

This is a contrarian indicator. Time to press the SELL button, before fat finger Goldman does.

Saxxon's picture

The HFTs arrived in full force with the 2009 'Bull Market'.  Thus we have only seen the bots bull up prices.

We get volume on sell days; otherwise slow melt up on anemic volume.  Yada yada, everyone here knows that.

A favorite table-pounding theory of mine . . . when the Bots finally turn and sell, there will no stopping them.  Not the Fed.  They can call Dimon or Lloyd but they will just deny it is them darkpooling shares out the back door.

That is when you want to be short.  That is when SRS, ZSL and SPXU will become desirable.

Pepe's picture

perpetual motion market......mmmm..probably not

ivars's picture

It will look closer to minimum - minus 13% after 5 weeks.

PulauHantu29's picture

Perhaps Bullishness will double once again if the Radiation-Saturated Winds from Japan start blowing West over China and Russia contaminating every living (and inert) entity in its way.

I m ean, can you get any more Bullish (by Wall Street standards) then this?

jkruffin's picture

Notice the scaremongering has already started, immediately following the FOMC minutes. I sure hope QE3 does not happen, and it shouldn't, but I am not in control of it. It sure seems they are prepping to announce QE3 just like they did with QE2, yet earlier to prevent erasing their gains over the last few months.

Mr. Benny Bubbles wants SP 1500, or oil $150 whichever comes first, and until he gets it, he will PRINT!!!!!!!!!!!!!

Magic Futures what else?

rich_wicks's picture

The Federal Reserve controls the markets.

razorthin's picture

Hopefully these assclowns are shorting themselves.  Fukking sheep.  The market only stays irrational longer than you are solvent if you are a dumbass with no risk control strategy.  And, if you are dumbass enough to be all in invested at these overbought levels.  Trading, of course, is different entirely - but I don't think that is what these numbskulls are proporting to be doing.