Market sentiment is shifting as the average bears reached 28.5 last week, the highest reading since November 2023.
Here’s the chart:
(right-click and open image in new tab to zoom in)
Let's break down what it shows:
The blue line in the top panel represents the price of the S&P 500 index.
The green line in the middle panel shows the average bulls from the Investors Intelligence (II) and the American Association of Individual Investors (AAII).
The red line in the bottom panel shows the average bears from the II and the AAII.
The Takeaway: We're beginning to notice more bears entering the market, as the average sentiment among bears has reached its highest level since November 2023. At the same time, optimism appears to be fading, with the average sentiment among bulls hitting the lower end of a year-long range.
Typically, we say that nothing influences sentiment like price movement. However, that's not entirely the case in the current environment, as most indexes are only 3-4% off their all-time highs.
Do the bears have insights into further weakness incoming for stocks?
From my experience analyzing market sentiment, I’ve learned not to take a contrarian approach but rather to follow the crowd until a reversal occurs.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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