This is the lowest level of investor newsletter optimism since 1994. It is very rare to see such a low level of sentiment and high level of bearishness. Newsletters tend to be optimistic about the market in-general so it is rare to see this low level of bullish sentiment. If these newsletters are bullish and wrong, it's often better than being bearish and right because investors typically don't like to read about how bad the market is going to be. If the market goes higher when they are bearish, than that can make matters even worse since they will lose subscribers. The weekly Investors Intelligence Survey is constructed by polling 140 investment newsletters and determining whether the publisher is bullish, bearish or neutral. Neutral means generally bullish overall, but expecting a short-term downside correction.
The AAII sentiment survey (American Association of Individual Investors) is a weekly poll conducted by that organization which intends to gauge the overall sentiment of their membership. They ask their membership where they think the market will be in six months, and group the responses into three categories: bullish, bearish or neutral.
Currently, there is an increasing amount of bearishness and less bullishness among members which is a very good sign.
Add to this bank and brokerage firm layoffs (which often happens near the end of a crisis instead of before), CNBC suggesting that perhaps the best way to make money in this market is to short stocks (sell the stock and buy it back at a lower price and pocket the difference), and a host of other sentiment indicators showing extreme levels of fear such as the liquidity premium, new highs verses new lows, high corporate insider buying, put/call ratios, up volume verses down volume ratios, and I find that at this point, there is more risk being out of the market than in it. Oil and commodities are also struggling. If China stops subsidizing gas prices after the Olympics, than that could add further pressure. Democrats are even considering opening up more area to offshore drilling.
Arthur Daret