We have been watching with interest the speed with which market pundits/participants/punters have crossed the floor (from the bullish to bearish camp). Since the 1st of June, just 6 weeks ago, the Dow World has fallen by some 7%, the CRB Index 10%, the USD Index +1.5% and US 10 year +1%.
These are not exactly big numbers. However, given how the crowd is reacting you would think that the Dow World had already fallen by at least 15% and the CRB by 20% over the last 6 weeks! Below are the results with an accompanying explanation of the famous investment sentiment survey from AAII:
OK so what is the significance? Taking away the extremes that the sentiment survey got to over the last 10 months (where at the worst point in mid March the Bullish %age got down to just 20%), a bullish reading of 25% was about as bad as it got for the last 15 years. Yes even at the depths of the LTCM “crisis” of 1998 the bullish sentiment only got to a low of 24%!
My perspective is this; what if the Dow World falls by another 3% this week, taking it to a fall of 10% since the start of June, one would suspect that the bullish percent reading would fall by at least 3% taking it down to 25%…..if the Dow World was to fall by 5% this week then we would likely see the bullish percentage fall to 20%! In addition to this, a fall of 5% in the Dow World would probably push the 50 day moving average ratio of the NYSE to well below 20% which would indicate not just an oversold condition (which at 30% is currently what it is) to an extreme oversold condition!
It seems that the crash we had late last year and again in February and March is still too recent for investors and with any slight pull back in the market investors are adopting “here we go again” attitude. It probably does not help that we are now being reminded that the real damage of the 1929 crash was in the three years after 1929 not 1929 itself!
If history is anything to go by, yes there maybe some more downside over the coming days; but odds favour it not being significant!
[...] It seems that the crash we had late last year and again in February and March is still too recent for investors and with any slight pull back in the market investors are adopting “here we go again” attitude. It probably does not help …More [...]