Bears Boil Over in This Stock Market Sentiment Survey

Put traders are getting bolder by the week

Managing Editor
Oct 21, 2022 at 8:00 AM
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Subscribers to Chart of the Week received this commentary on Sunday, October 16.

One stock market sentiment marker we haven’t checked in some time is the American Association of Individual Investors (AAII) survey. The survey is taken from its 100 members, asking where they see the market going in the next six months. Members simply click bullish, bearish, or neutral, based on their predictions. It’s not a question of how portfolios are positioned, and no money or even reputation is at stake, so per, our Senior Quantitative Analyst Rocky White, we consider this a short-term indicator due to its volatility.

This week’s reading was brought to our attention via White, who explained that investor optimism fell for a fourth consecutive week, while the bulls minus bears line has moved lower for five weeks, and sits at its lowest mark since March 2009. Bulls among advisors fell to 25%, a 0.4% drop, while the bears among advisors saw a 2.3% increase to 44.1%.

In terms of a market correction, 30.9% of investors belonging to the AAII survey are supportive. Looking back at readings since 2005, this is only slightly above the average 28% reading of those who believe a market correction is likely. Comparing the percentage of participants that marked themselves as bullish, the current reading of 25% is lacking next to the average reading of 48% since ’05.


With the bulls minus bears line reading its lowest score since early 2005, its little surprise that bulls are pulling in a number that sits at its lowest since February 2016. On the flip side, bears are bringing in a more than decade peak reading. Again, we are looking at this survey as a volatile, short-term outlook. In simpler terms, with the bears sporting a reading above 40%, extreme pessimism is the current short-term outlook for the market.


Options traders are echoing this survey. Last Tuesday, the S&P 500 Index’s (SPX) equity-only 10-day buy-to-open put/call ratio clocked its fourth-highest number ever, just below 0.90. And nearly three weeks ago, on Sept. 26, the Nasdaq-100’s (NDX) own put/call volume ratio hit an all-time high of 0.91. These ratios will be situations to monitor in the coming months, as Wall Street grapples with a potential bottom amid rampant inflation anxiety.


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