Bears Scare Away Bulls in Investor Sentiment Index

Tuesday, 20 Sep 2011 07:20 AM

By Rick Pendergraft

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One of the most important and reliable sentiment indicators is the Investors Intelligence report.

It is one of my favorites and I have written about it often. The Investors Intelligence report from last week crossed an important threshold as the bearish percentage exceeded the bullish percentage for the first time since last August.

The bearish percentage jumped to 40.9 percent while the bullish percentage dropped to 35.5 percent. The ratio of bulls to bears stands at 0.86 and that is similar to what we saw last August.

Prior to the reading below one last August, the two previous times the ratio dropped below one was July 2009 and March 2009, right as the market was coming out of the bear market.

This bearish extreme could be a sign that we have seen the bottom in the market for this correction, but I would like to see the ratio stay below one for a few weeks.

Quick trips below one by the ratio haven't been as reliable of a bullish indicator as ones that lasted for several weeks.

The latest Investors Intelligence report is just one more sentiment indicator showing extremely bearish sentiment toward the overall market.

From a contrarian viewpoint, this is very encouraging for the rest of 2011.

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