The latest Investors Intelligence weekly survey on newsletters shows that 40% of the newsletters are still bearish on markets prospects, and 37.8% are bullish. Historically, 35% bullish sentiment or less has coincided with market bottoms and 50% bearishness or higher has also marked market turning points.
The American Association of Individual Investors survey also shows that there is not a lot of optimism, or pessimism towards the stock market.
Investors have been adding to cash positions, public short interest is high, and headline news is dismal.
New market rallies have a way of starting when news is at its worst. With newsletter sentiment still negative, it reminds me of the early to mid 1990's when would turn bearish quickly whenever the market declined. It was positive in that we never had a real nasty bear market (after 1990) until 1998. There were corrections in-between but the market was in an uptrend with periods of consolidation. Right now it appears that the market is in a similar situation. Bad news has been factored into stock prices but there isn't enough optimism to fuel a rally at this point.