The Bull Camp Is Shrinking. The Bear Camp Has Plenty of Empty Cabins.
Former bulls are gravitating to an unlikely destination — and it may not make investors happy campers.
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There are two themes that have developed in the last few weeks. At least two themes that I tend to hear an awful lot.
The first is that after the midterm elections the market will be okay again. This should not be new to you since I have highlighted this talking point from so many over the last few weeks. I call this not just consensus but complacency.
The second is the level of frustration folks have when it comes to the sideways action over the last five months. The bulls and the complacent ones believe it will resolve upward. The bears, naturally, think it will resolve downward. The problem is I don’t see any bears!
And the low number of bears are seen in the Investors Intelligence survey this week. The bears are still at 16%. The good news is the bulls are down to 45% (more on that later). So in the last several weeks, the bulls have dropped from 56% to 45% but they have not gravitated to the bear camp, rather they are now in the correction camp.
With the correction-minded folks so high I took a look at other times they got so high. You can see how they jumped up over 35% late in the spring decline. Recall the bulls dipped to 33% then so the sentiment really was bearish then.
But some of the other times on this chart tell a different story. In late February 2020 they began to climb and got over 35% before we knew that Covid had spread, or for most, what Covid even was. That’s point A on the chart.
In October 2021 we saw them rise to 37%. In case you need reminding, the first week of November brought us a peak in the market (point B). Even in early 2022, after the market had dipped and rallied again the correction-minded folks got to 40%! Then came the spring decline. (Point C)
There was even a reading in mid-August 2023 of 37% just before the S&P gave up 10%. (Point D) And finally these folks moved to 37% in early March 2025, before the Tariff Tantrum. (Point E)
It doesn’t work that perfectly every time. Notice there are times these folks jump into the correction camp at the end of a decline. But we can all agree, the current situation is not one where the S&P is down already.
But that brings me to a question I seem to field almost daily: What can take us down? If I knew I think it would already be priced in.
What I do know is that with the bulls already at 45% it probably won’t take a lot to get the correction-minded folks to flock to the bear camp. What I do know is that the 10-day moving average of the put/call ratio has crept higher this week, not lower. So with the reading now at 0.89 a good whack in the market could get that finally moving up.
That brings me back to the chart of the iShares Russell 2000 ETF (IWM). You need to squint really hard to see it is desperately trying to cross that downtrend line I drew in a few days ago.
There is resistance all the way up but as long as the IWM stays over $275-ish I’m going to give it a chance to push upward.
