Too Fast of a Sentiment Swing
Free Chart In Focus email
Delivered to you every week
The latest numbers out of Investors Intelligence show that bulls are now up to 47.4% in their survey of newsletter writers and investment advisors, and bears are now down to 27.8%. That takes the bull-bear spread up to its largest value since August 2015, and higher than the peak seen at the November 2015 price highs.
On its own, the bull-bear spread is not yet at a super-high level which would mandate a price top. But there is additional information in the rapid nature of the change in that spread. When the bull-bear spread changes rapidly in a short amount of time, that can sometimes be more important than the actual level to which the spread moves.
Here is a chart showing the 4-week change in the bull-bear spread:
When it goes outside of +/-20 percentage points, it says that sentiment has changed too quickly, and thus an exhaustion event is happening. Following the exhaustion event should be a rest period lasting a few weeks, to restore balance to The Force. It is hard to keep a move going after this indicator posts this sort of rare and extreme reading. It is much more sustainable when excessive bullishness or bearishness develops more slowly.
For a deeper understanding, here is a further look back showing the behavior of this indicator from 2005-2011:
Usually an excursion above +20 percentage points is a call for prices to pause and correct. Occasionally, however, there have been excursions above +20 that have been followed by continued upward movement. Those appeared during strong upward trends, and were extremely rare. The much more common interpretation has been that a reading above +20 is a sign of too much eagerness, and that a corrective period is needed to set up for whatever is next.
Editor, The McClellan Market Report
Oct 30, 2014
Insights from Investors Intelligence Data
Nov 06, 2014
More from Investors Intelligence Data
Feb 24, 2016
Closing TICK As a Sentiment Tool