Bears Winning: Sentiment Stinks

The bears seem to have taken over the market these past few weeks and that should make bullish contrarian investors happy.

In the week ending April 20, a staggering 44% of individual investors had a negative view on the outlook for the stock market. That compares to a historical rate of a mere 31%, according to data from the American Association of Individual Investors (AAII.)

Small Investors Clearly Are Scared

It’s not just the abundance of bears that is heartening. There is also a scarcity of bulls. Just 19% of individual investors were bullish int he same period, versus a historical rate of 38%.

In other words, whether you look at the bull data or the bear data, individual investors are sacred.

Fear Haunts Professional Wall Street Traders

But it also looks as if the professionals are scared too. The value of the dollar has surged recently, which is considered a real market ‘tell.’ That’s because when investors are worried the U.S. dollar is considered a safe-haven investment.

The U.S. Dollar Index, which tracks the value of the greenback against a basket of other currencies, was recently up 6.1% over the last three-months and had gained 12% since this time last year, according to data from MarketWatch.

These Are Bullish Signs

An overwhelming majority of market participants being bearish might not make good cocktail party talk. It does indicate a possible bullish outlook for stocks.

This positive view is based on the contrarian investment idea which says that when most people have a view in one direction then it’s time to go the other way. When everyone is bullish, then sell. When everyone is bearish then buy.

Of course there is never a 100% view of anything on Wall Street. But when there is an overwhelming view in one direction the odds are with you to go the other way. In this case, that likely means consider buying stocks, such as those held in the SPDR S&P 500 (SPY) exchange-traded fund which tracks the value of the S&P 500 index.