Investors Becoming Less Bullish, Which Is a Good Sign

Tuesday, 20 Nov 2012 07:44 AM

By Rick Pendergraft

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Last week’s Investors Intelligence report had a big shift in the bullish percentage, as it dropped over 5 percent on the week.

The bullish percentage was at 43.6 percent on Nov. 7 and dropped to 38.3 percent last week, while the bearish percentage increased to 28.7 percent after three straight weeks at 27.7 percent.

These readings give us a ratio of 1.33 bulls for every one bear. This same ratio was up to 2.2 back in mid-September.

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With these reports being released each Wednesday, I would expect this week’s ratio to show another drop in the bullish percentage after last Wednesday’s big decline in stocks.

Meanwhile, the 21-day moving average on the Chicago Board Options Exchange Put/Call ratio has jumped over the last few weeks and is now at 0.726, which is the highest reading since late June/ early July.

In addition, the Rydex Nova/Ursa ratio dropped as low as 0.208 last week, which was the lowest reading of the past year.

What these three indicators tell us is that investors have turned decidedly more bearish over the last two months. From a contrarian viewpoint this has to be considered encouraging.

The volatility is likely to remain high as long as there isn’t a budget agreement in place, but negotiations between Democrats and Republicans seem to be headed in the right direction.

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