Why the Bulls are Nearly Extinct

It appears the ugly season is over…for now.

That said, while all those terrifying earnings announcements have begun to recede, be sure they’ll return as part of the end of Q1 announcements in another 5-6 weeks.  

And guess what?  

The crowd, it seems, is still not all that enamoured with the bounce from the lows of the Q4 panic.  

And sure, there’s certainly more work to do to get back to new highs.

Depending on the average in question they’re still meandering around somewhere between 4.5% and about 6% from their previous highs, and the intra-day directional shifts continue to be headline and algorithm driven.

Long-term though there’s been an unrelenting upward movement, interrupted at times by a few "dizzying" windows like Q4 here and there.  

Here’s what that process has done to the emotions of the bulls and bears out there:

Let's get our bearings here. The navy-blue squiggly line shows the percentage of market bulls dot-connected for last 10 years.

The red line moving from the lower left to upper right shows us the S&P 500 Index last 10+ years.

And the purple line (my add) has been put in to help you see where we are in this mess of muddled sentiment.

Finally, the black dotted line in the upper right-hand corner shows you where we were in January 2018, compared to where we are now (about 3.5% lower).

Notice the huge spike in bullish readings at the start of last year. In essence, after almost 10 years of watching the market rise from the death-knell lows of March 2009, the crowd thought it was a pretty good time to feel great about stocks.

Now here’s the interesting bit; at a time when we’re now at just 3.5% below those price levels (and after what is clearly a choppy year of digestion) the bulls are nearly extinct. We’re just 11 points off the lows reached during the December panic and the current sentiment readings for bulls are in the lowest 28% of all readings in that chart.  

Wow!

And by the way, folks, this is fantastic!

Investors in general seem to be in love with bonds again at a "safe" 38 times earnings.  

And they don't want to touch stocks with a 10-foot pole.  

Another View?

Lots of chatter has been spent on the ‘bulls’ and ‘bears’ readings.  

But I also like to make sure we highlight the ‘neutral’ readings as well.  

After all, ‘neutral’ really means, "I hate stocks but I don't want to look foolish clicking on the bearish vote button and then watch the market rally 15%..."

Now the purple line here shows you that with the exception of a few minor blips, and the extended period in 2015/2016 when Brexit was the Armageddon-like monster hunting us down, the ‘neutral’ levels have rarely been higher than right now!

Imagine that. We are just 3.5% off of the January 2018 highs and, as noted, about 5% off the all-time highs.  

Yet a combined 68% of the crowd is NOT bullish on the markets.  

And, as noted above, this is f.a.n.t.a.s.t.i.c.