Bears Are Waiting for Something to Break

Jun 29, 2022 2 min read
Bears Are Waiting for Something to Break

Investors Intelligence Bull/Bear Ratio (BBR) remained under 1.0 during the June 28 week at 0.82 for the ninth consecutive week. It has been bouncing around 1.00 since late February. In other words, it hasn't worked as a short-term contrarian indicator given that the S&P 500 has been falling since it peaked on January 3. However, the BBR might have signaled at least a short-term bottom on June 16 when the S&P 500 closed at 3666. That week (through June 21), the BBR fell to 0.60, the lowest since the March 9, 2009 bear market low. In other words, sentiment is already as bearish as it was back then, but the S&P 500 is down roughly half as much this time, so far. Here are a few more related quick takes:

(1) Bullish sentiment jumped this week to 32.9% from 26.5% the prior week, while bearish sentiment dropped to 40.0% from 44.1%.

(2) The AAII Sentiment Survey (as of June 23) showed optimism fell as pessimism rose to near historic levels. Bearish sentiment, i.e., expectations that stock prices will fall over the next six months, rose a full percentage point to 59.3%. This is an eight-week high. Pessimism was last higher on April 28, 2022 (59.4%). The bull-bear spread (bullish minus bearish sentiment) is –41.1% and is unusually low for the 21st time in 24 weeks.

(3) Bearish investors are waiting for something to break as a result of tighter monetary conditions. The S&P 500 VIX has been highly correlated with the percentage of bears in the II survey. But it remains relatively subdued currently (chart below).

(4) The same can be said for the yield spread between the high-yield corporate bond composite and the 10-year US Treasury bond (chart below). The spread has been widening, but isn't alarming--yet.


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