Bears Rise, Bulls Fall — And That’s Good News for the Market
As the Either/Or Market continues, let’s examine the implications of an important change in the Investors Intelligence survey.
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The semis rallied! Of course they did so at the expense of almost everything else because we have still not moved on from the Either/Or Market.
We also did not see an expansion in stocks making new highs, so are we to assume it was all short covering? Likely some of that and likely some bottom fishing in an oversold group. And I would be remiss not to mention that the Nasdaq’s volume soared, not thanks to any sort of panic buying or selling but due to penny stocks. One penny stock traded well over two billion shares. So that nonsense is still alive.
Yet for me the story of the day was sentiment. The Investors Intelligence survey showed a marked change. The bulls fell to 37% while the bears jumped to 24%. That leaves the ratio of bulls to bears at 1.54. This is the lowest reading since we had 1.12 at the spring lows.
While I am not surprised at the move up in bears (and down in bulls) I am quite surprised that no one budged from the correction camp. They remain at 39%. Recall a week ago we discussed when corrections are that high and bears are that low the correction-minded folks tend to be correct (they were as the very next day the market tanked).
But is this move in sentiment in a survey I value highly enough? If we use the spring of 2025 as a guide, it ought to be. In 2026, during the Tariff Tantrum it required more downside to get bears up and bulls down. Notice in the green box on the chart of bulls the bulls got under 30% and we had a nice rally. It doesn’t look like much but we rallied several percent overall. But then we came down again in a big whoosh and the bulls got under 25%.
But it is 2022 that I find of interest as well because at each of those points on the chart of the S&P 500: A, B, C and D, the S&P rallied somewhere in the area of 10%, with the rally off D clocking in at nearly 20%! before heading back down again. All of those readings were successively lower for the bulls.
Point A was 35%. Point B was 30%. Point C was 27% and Point D was 26%. So we have to ask ourselves if this is 2026, which was fast and furious and over in a flash. Or is this 2025, which was also over quickly but still had that one final flush. Or is this akin to 2022, which was a bear market with rallies along the way.
I don’t know but since we looked at 2022’s indicators about two weeks ago when referring to the chart of the Sentiment Cycle I am inclined to look at that for now.
Finally, as a reminder, the indicators continue to show the “others” as heading toward an overbought reading sometime around Thanksgiving. That often means a dip/pullback and another try upward.
