Investor Sentiment

While it appears that the future path of globally correlated risk assets is increasingly binary (or even tertiary if we include muddle-through), the AAII has just recorded one of the lowest prints for Bearish Investor Sentiment ever. At only 17.16% of respondents bearish, this is second only to the late 2010 (QE2-inspired) trough in bearishness that soon after heralded the top in risk assets for this cycle - as the rumor rally met the news negativity. This level of bearishness is over two standard deviations from long-run norms. Almost 50% of respondents are fully bullish (which explains the retail equity outflows?) which is the highest in 9 months. The ratio of bears to bulls has accelerated to almost record levels as it seems the respondents that AAII is asking are increasingly (over) confident in their nominal returns (perhaps not so much their real returns), or perhaps believe the hype of a fiat print-fest just around the corner (maybe not post NFP?) and see only upside for USD-numeraire stock prices (even as earnings contract and outlook downgrades persist). So the next time someone tells you that the market will rally because everyone is so negative - not so much.

Fitch joins the Hungary "junking" parade, which centers around the country's former unwillingness to yield to the banking cartel regarding its central bank, which as of today is no longer the case: "The downgrade of Hungary's ratings reflects further deterioration in the country's fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal."

I am betting that we will see lower prices before higher as there are few bears (i.e., no short covering) and as the time for the bulls to have taken the reigns of this market have long since past.

Did the Martians kidnap Santa Claus?

Is this just another case of investors selling low and buying high?

The big change will be the decreasing acceleration in the rate at which gains will occur.

Sell offs will likely remain contained as there will be willing “dip” buyers at lower prices.

It is ugly but with prices still above support, there is hope.

Let's be clear!

The two week bounce has served one purpose, and that is put a floor or “line in the sand” under this market.

These kinds of extremes in sentiment have not been seen for 12 months.

The market has taken a nasty hit this past week, and as expected, investors have turned bearish.

The easy part was the bounce. The hard part was knowing that the SP500 was going to gain nearly 5.5% in one week.

The bulls’ main argument is the bears.

For the first time since September 10, 2010, the “dumb money” indicator has turned bearish.