Stubborn, ingrained, perpetual skepticism. This is the message being conveyed from AAII sentiment for the past 13 months. This week's reading came in at 1.16 bulls vs. bears. Despite the fact that DOW 11K and SPX 1200 were captured, despite an 80%, 13th month rally from the bottom the little guy as represented by AAII refuses to embrace the bull market and gets scared off by just 1 marginal down day.
It continues to be the case that for any kind of bullishness to build up in AAII, the market has to climb mountains but when the market takes a baby step or 2 backward that bullish sentiment rapidly disappears. That's wall of worry behavior folks and still indicates we are stage 1 of this bull market. Only 1 time, just 1, since March 2009 did sentiment hit a 2:1 ratio of bulls vs. bears and that happened in late December last year and just a single reading of 2:1 is by no means a bull killer. During the last bull market from 2003-2007 a 2:1 reading happened several times especially from mid to late 2003. In fact, AAII sentiment hit 6:1 bulls vs. bears by early 2004! And even despite this off the charts reading the market didn't fall apart afterwards...it simply consolidated for a few months with a maximum drawdown of 10% before hitting new highs by the year end. The same sort of behavior occurred in the bear market. There were plenty of times where the ratio hit 2:1 bears vs. bulls or more and yet further significant downside occured after perhaps a bear market rally or 2.
Given that there has been only 1 time where the bull to bear ratio hit 2:1 since this powerful bull market started it's practically guaranteed that it's nowhere close to being over. Looking back at the 2003-2007 bull market there's got to be at least 20 times where the ratio hit 2:1 or more. During the bull market of 1990-2000 it happened at least 60 times!
As far as current market action goes, I get the feeling based upon anecdotes it seems like bulls and bears alike are looking for a correction so we got ourselves a watched pot syndrome here. Despite low pcrs last week during options expiration (making distortions more likely) they have been quick to firm up on just marginal weakness in the market but so far today they are low again. It's a very fickle indicator the pcr is. When enough people drop their guard we'll get a correction. It's always difficult to know exactly when that happens. If I get a good sense of it, I'll mention in. Right now I don't.
With earnings surging like they have been for several months now, it's just a matter of time before we start seeing a surge in payrolls and that could usher in a wave of capitulation from the skeptics who are calling this a "jobless recovery".
By the way, this same "jobless recovery" mantra we are hearing is what people said after the 1990 recession and the previous recession. Eventually the jobs did come. That's why it's a lagging indicator.
Newbie bears are learning this the hard way.
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