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Buzz & Banter



The other day, I mentioned the low level of bearish respondents to Chartcraft's Investor's Intelligence survey. Yesterday, I took a long look at each past occurrence of such low levels of bears since 1969, and wanted to pass along a couple of brief snippets from the study.

First, a low level of bears taken in isolation is a terrible market timing tool. If one had bought the S&P 500 the day after fewer than 16.5% bears was reported, one would have suffered an average drawdown (loss) of around 9% before the market began a correction of 5% or more. The amount of time between the report and a subsequent high was about 2 1/2 months. It was rare to see the market turn down immediately.

Second, out of 13 distinct occurrences, only once did we see the bearish percentage jump back to "normal" (between 22% and 44%) the week after an extreme reading under 16.5%. The average number of consecutive weeks under 22% bears was 10 (after the affects of an outlier are eliminated). This means that once we saw a bearish percentage reading under 16.5%, the number of bears stayed low for an average of over two months.

We can't assume that the market will follow the exact path of an average of 13 past instances of one indicator. But I think it's important to know that the thought, "the number of bears fell, it's time to sell," is not necessarily valid based on historical precedent (though I have to admit I have been guilty of that thought myself).

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