Sentiment Finally Matches Price Action

I wrote here in February about how the Investors Intelligence bull-bear spread had gone to an extremely high level.  It has since come back down again, as the war with Iran has stock market analysts rethinking their optimism.

The Investors Intelligence survey of investment advisors and newsletter writers (including me) comes out every week.  Like most sentiment surveys, it responds to what prices are doing.  There is nothing like an uptrend to get people excited, and selloffs tend to make people turn bearish.  That is not true for all survey respondents, obviously, and some of us work to trade against what the crowd is doing. 

The remarkable point about the Investors Intelligence survey data is just how precisely it matches the price action, most of the time.  The chart above shows the SP500 on a detrended plot, meaning it is a comparison of where the index value is versus its 200-day simple moving average.  Making this simple adjustment results in both plots staying close together most of the time.

Occasionally, though, the sentiment data overshoot what prices have done.  I call that a manifestation of "pure" sentiment as opposed to price-induced sentiment.  When we see these sentiment overshoots, the message is that the crowd has gone too far in either its enthusiasm or its pessimism, and the stock market usually responds by moving away from that overshoot.  That movement tends to continue until sentiment oversteers to get back in step with what prices are doing, and we have seen that happen just now. 

Three weeks ago, the bull-bear spread was at +40.8 percentage points.  The latest data show that it is down to +18.5, which is a really big reappraisal of the market's prospects.  A war breaking out can do that.  When sentiment lurches like this, it is usually a great opportunity to bet against the crowd.

On a separate note, I recently did an interview with Lars Von Thienen of the Foundation for the Study of Cycles, https://cycles.org.  We discussed the sunspot cycle and its impacts on the financial markets, a topic I addressed here back on Feb. 26, 2026.  You can find a link for that 46-minute interview at our Home page, https://www.mcoscillator.com/.