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Thursday, March 28, 2013

Low bear count in the II survey

The number of bears in the II survey has been below 20 for three weeks straight.  I have watched this survey for many years and this is a very low reading.  Here is an interesting longer term chart.

Short Side Of Long: Chart Of The Day: Bearish Sentiment

I have marked the last four times the number of bears got this low.  There were some big moves down from this condition.  There were two instances in 2010.  The first one saw the market continue higher for a while and then had only a modest pullback.  The second instance that year was just before the flash crash.  The 2011 instance came just before the near 20% pullback started that year.  It is interesting that in the very bullish year we had in 2012 it never happened.  Even though the market kept going up, people did not get as complacent as in 2010 or 2011.

Many years ago I saw a very long term chart of this survey covering the 80s and 90s.  It was extremely rare that the number of bulls ever got over 50% before 2000.  Since the secular bear started in 2000 it has not been rare at all.  There was constant skepticism during the biggest bull market of them all that is not present now.  I guess when things are good, people worry the good times are going to end.  When things are bad like now, people hope the good times are coming back again soon.  This is clearly evident with the pundits on TV constantly telling me the economy is set to take off any day now.  I think they will be greatly disappointed in how the economy performs.  Here are some statistics that make this clear.


If the since 1988 stats did not include the data since 2000 I think that 44% bulls would be slightly lower.  At any rate we can see that since 2000 there were consistently more bulls and less bears then before 2000.  I suspect this is post bubble syndrome.  People still think the economy and the market is going to return to the form it had in the 80s and 90s.  Past history has shown secular bear markets don't end until a lot of people swear off stocks forever.  Although there are a few people that have, I don't think there is nearly enough.  That is what causes stocks to get truly cheap in the end.  Something that clearly has not happened yet.

We have high margin debt and complacent sentiment that usually only happens near important tops.  The divergences going on now would seem to indicate a pullback is imminent.  I think it is likely to be bigger then most expect. 


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