A Dearth of Bears Out There

 | Oct 30, 2013 | 6:15 AM EDT  | Comments
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Stock quotes in this article:

aapl

,

tsla

About a month ago I complained about the lagging Nasdaq statistics for the first time. No one much cared. About two weeks ago my complaints became much more persistent -- almost daily! Yet no one much cared.

But, on Tuesday, many others started to notice this divergence.

Perhaps it was the reversal in Apple (AAPL). Perhaps it was Tesla's (TSLA) dive. But, whatever it was, I now have company. I also noted Tuesday morning that the Russell 2000 had lost ground in four of the last six trading days. I noted that it seemed no one was paying attention to this, and that typically there would be plenty of posts on Twitter about that divergence. Well, later on that day, they noticed. I think it was because the divergence was so obvious to everyone that they could no longer ignore it. After all, who can miss it when the Russell is red and the Dow is up 100 points?

In any case, the cat is now out of the bag!

The most interesting statistic that arrived on my desk Tuesday was the Investors Intelligence readings -- the survey is now showing 16.5% bears, the lowest bearish reading since the 15.7% ratio recorded in April of 2011. Before you freak out over comparisons with that year, keep in mind that this not July or August. Sure, it was the beginning of the topping process, but it wasn't what sent the market down 20% that summer.

Above is the S&P 500 chart from April 2011. The arrow represents the point when we saw that extremely low bearish reading. As you can see, the market corrected. Folks, it wasn't the end of the world. It wasn't the end of the market. It was a garden-variety correction, and we all lived through it. It used to be that pullbacks were thought to be health-restoring. Now it's as if mentioning the word "correction" will get you labeled a permabear, a top-caller or a non-believer in a world of religious fanatics.

Another interesting sentiment statistic comes from Investors Intelligence, which likes to use the spread between bulls and bears, rather than the absolute numbers that I tend to prefer (under 20% bears or over 55% bulls are bell ringers for me). In the view of II, a spread of more than 30 points means the divergence has gotten too extreme.

Well, that spread is currently at 36.1. The last time we saw this figure reach 36 was May 22, when the spread was 36.4. If that date sounds familiar, it's because that was when the S&P made a high in May, and it was also the date of the Federal Reserve meeting that led to the Taper Tantrum (that is, the Fed's suggestion that it would soon taper quantitative easing). You have to admit, it is a bit eerie that this spread finally gets back to 36, and it occurs on the day of a Fed meeting.

I cannot imagine, given the state of the economic data lately, that the Fed will talk about tapering today. But they have surprised us before, haven't they?


 

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