LIVE MARKETS-Investment advisor sentiment: Has the worst of the storm passed?

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INVESTMENT ADVISOR SENTIMENT: HAS THE WORST OF THE STORM PASSED?

The American Association of Individual investors (AAII) produces a weekly survey of stock market sentiment among its members. The survey is widely used as a contrarian indicator.

Last week, AAII reported that bears were "unusually high" and bulls were "unusually low." Additionally, last week, was the first time in the history of the AAII survey that bearish sentiment exceeded 57% four weeks in a row.

Investors Intelligence (II), a global investment service, also releases a weekly sentiment survey which is also closely followed, and, at extremes, may also be useful as a contrarian indicator.

II, however, surveys independent market newsletter writers and assesses each author's current view on the market: bullish, bearish, or correction camp.

According to the most recent II data, 30.5% of investment advisors are bullish, while 28.8% of advisors are bearish. The percentage of advisors in the correction camp is 40.7%. Thus, 69.5% of advisors are, in some way shape or form, negative on the market:

Therefore, the spread between bulls and the combined total of bears and the correction camp is now -39.8%, which is up from an early March low of -44.8%.

That early-March trough was the lowest reading since -50.0% in early October 2022. The S&P 500 index .SPX ended its 2022 bear market on October 12, 2022 (-25.43% on a closing basis).

In terms of the current decline, on Thursday March 13, the SPX ended down 10.1% from its February 19 record close. It's last down 7.4% from its record finish.

If the spread can continue to recover and move back into positive territory, it may coincide with greater SPX strength, and suggest the worst of the storm has passed in terms of the level of advisor concern over the market's prospects.

If instead the spread falls deeper into negative territory, amid intensifying fear among advisors, it may coincide with greater S&P 500 weakness. However, an even more negative spread would suggest an even stronger contrarian signal, in terms of the market being potentially ripe for an upward reversal.

(Terence Gabriel)

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