Here is the latest Investors Intelligence report along with the all-important sentiment chart: Last Friday’s close showed a major rebound from Wednesday’s lows but the major averages still fell for the fourth straight week. There were turnaround signs with some indicator upturns and over 600 stock selling climaxes. Consecutive sessions with new stock buy signals in the majority added conviction to a positive momentum shift. The speed and size of the rebound wasn’t yet acknowledged by the advisors who remain overall cautious. As we go to print they are not yet convinced that the correction is over. That is a positive sign as they will have to increase their exposure if the rally gains traction. That should add fuel for more gains.
There was a new decline for the bulls to 35.3%, from 37.8% a week ago. Their number is now 22.3% below the start of September reading of 57.6% that was solidly in the danger zone. Bulls above 50% signal high risk but the suggestion now is that they have raised lots of cash. The bulls are just below their late summer 2013 level to a low since June 2012. Both prior lows followed market retreats. Some remaining bulls said to hold positions with expectations that any market decline would be mild. If not fully invested they want to buy the dip.
There was also another increase for the bears to 18.2%, from 17.3% last issue. That is a high since late May when their count was falling from the 21.7%, shown in April. The new bears come from the correction viewpoint with comments that this market pullback would exceed others in 2014 and require major defensive measures.
A higher level also occurred for those expecting a correction, to 46.5% from 44.9% last time. Both readings were 30 year highs! Their count has risen sharply since the September index highs, with Alibaba’s IPO mentioned as a top signal. Even after the recent declines many advisors note the S&P 500’s failure to pullback 10% as a reason to remain cautious, along with the upcoming end of Fed asset buying support. The high correction figure is another hint that a rally is underway as the market rarely fulfills the greatest expectations.
The spread between the bulls and bears dropped to 17.1%, from the 20.5% and 31.4% the prior two weeks. It is near positive levels, down sharply from late Aug and early Sep when two weeks of danger readings at 43.5% and 42.8% occurred. Differences over 30% are a worry but they signal major caution at 40%+. The spread shows a low since Sep-2013 when it was expanding from the favorable reading of 13.4% that Aug. That was close to the 10% (or less) reading that allows for broad buying. Bears haven’t outnumbered bulls (a negative spread) since October 2011.
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