We’ve lost our bears...and that might be a problem.
Take a look at the MoneyShow Chart of the Day, which shows the percentage of respondents to the weekly American Association of Individual Investors (AAII) survey who said they were bearish on stocks. This bearish sentiment indicator surged to almost 62% back in early April. But it just plummeted to less than 34%.
AAII Bearish % Sentiment Indicator
Data by YCharts
You can see a similar pattern in other investor sentiment indicators, including the CNN Fear & Greed Index. And of course, the CBOE Volatility Index (VIX) has come WAY down from its peak of 52.3 on April 8. It closed at 20.1 Wednesday -- above the low under 17 from early June thanks to the Middle East crisis...but far from a "panicky" reading.
What’s the problem? Isn’t optimism good for us? Maybe in real life. But not necessarily in MARKETS.
You might remember that back in late April, I highlighted how bearish sentiment readings remained VERY high despite a big rally back from the “Liberation Day Massacre.” Investors didn’t really “believe” the rally.
From a contrarian standpoint, that meant it would likely continue. Late-comers and FOMO buyers were still waiting in the wings, providing fuel for more gains if they capitulated and bought. The latest data and market activity suggests that’s EXACTLY what has happened.
Now, we don’t have that cushion of FOMO money. The bears are MIA. So, even if headlines out of the Middle East get less ominous in the coming days, markets may struggle to get much done.
