Another bearish extreme but it may only be good for the ST

Another key piece of sentiment is showing a bearish extreme. The National Association of Active Investment Mangers measures the net long exposure active managers have. The latest reading is 4%. This is pretty much as low as it has gotten even during the 2008 crash.

Keep in mind however that this is more of a ST timing indicator. It does tends to give more accurate contrarian buy signals then sell ones which is good for the bulls here but again, the current low reading may only turn out to be indicative of a ST/IT bottom and not a LT bottom. Take first instance the bottom in August of 2007, January 2008 and July 2008 when there was a low reading similar to today's. At those bottoms there was clear symptoms of  the impact sub prime debt was having on the economy which created an oversold market and a lot of negativity. Then, for one reason or another the market bounced for a few weeks on hopes that the worst was over or that the market had "discounted the worst"  but of course that wasn't the case. The major economic damage still lied ahead along with the clean up process of restructurings, recapitaliations and government programs such as TARP. People kept underestimating how quick and severe earnings and the economy contracted.

We could very well be in a similar situation today as we were when the market hit temporary bottoms in late 2007 and the first half of 2008 whereby negativity became acute, and the market was oversold. But it seems inevitable to me that before it's all over the tough medicine will have to be swallowed i.e the haircuts, recapitalizations and TARP like programs. I don't know if that will take 1 month or 1 year to fully play out but I think it will happen.

As always I'll keep an open mind as to how this may all unfold.