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A Surprising Sign of Skepticism


One poll shows a huge amount of disbelief in this rally


One of the rather amazing developments that's come to the fore over the past couple of weeks is that there are relatively few who believe that we've already seen an intermediate-term market low - many seem to be of the opinion that more work needs to be done on the downside.

We can see that in spades via the sentiment survey. This survey takes responses through each Sunday, then releases the results on Monday. The poll asks respondents if they feel the Dow Jones Industrial Average (DJIA) will be 2% higher, 2% lower, or flat 30 days from now, and what their guess is for the Dow's level a few weeks in the future.

Lowrisk then aggregates those guesses and reports the average each week. I sometimes find it instructive to compare the forecasts to the current level of the Dow to see just how bullish or bearish the respondents are.

The chart below shows the surprising current forecast:

The chart shows that over the past four weeks, the guys and gals that take this survey have consistently forecasted the Dow to be more than 3% lower than where the Dow was at when the survey was taken.

This is a level of skepticism so large that we haven't seen a similar reading in four years.

Interestingly, these guys didn't have it all wrong. We saw similar levels of pessimism after some previous large drops, like in August and September 2002. What we saw was a market drop and then a rebound, then the folks who respond to this survey had become very negative in their forecasts after the rebound.

Usually, the market complied in the short-term since we saw the Dow drop back a bit, but longer-term the lows held and equities continued higher. Given the comparatively small decline and rebound that triggered this kind of skepticism, it's pretty evident that a lot of traders have misgivings about just how much longer this bull run can go.
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