Sentiment Work Suggests that Investors are Still Underinvested

We've had a nice little sell-off in the stock market over the last couple of days. I must say that it was a bit more intense than I had originally imagined, but I we'll take it. There are some interesting setups all over the place on the long side. I think we can be patient though, pick our spots, and get involved in situations that present the least amount of risk for the most amount of reward.

All the bearishness out there still suggests that investors don't have enough skin in the game. Investors Intelligence comes out with a report on the amount of bullish and bearish market newsletter writers. According to data compiled by Bloomberg, 37% of those writers were bearish during the week that ended October 25th. This puts the ratio between bulls and bears at 1.06, which is substantially less than the average of 1.60 since 1989 and the most recent peak of 3.65 in April.

From Bloomberg:

While the index posted the best return since 1991 in October, the ratio of bullish to bearish newsletter writers is "still quite low," signaling investors who have missed the rally may be looking to purchase stocks, according to Christopher Verrone, head of technical analysis at New York-based Strategas.

"Our sentiment work suggests investors are still under- invested," Verrone said.

It's "difficult to get too short with the sentiment data still looking like this. At the very least, this probably helps to keep a floor underneath the market as we push into year-end."

Source:

S&P500 to Show 'Resiliency' to End of Year: Technical Analysis (Bloomberg)