• 846 days Will The ECB Continue To Hike Rates?
  • 846 days Forbes: Aramco Remains Largest Company In The Middle East
  • 848 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,248 days Could Crypto Overtake Traditional Investment?
  • 1,253 days Americans Still Quitting Jobs At Record Pace
  • 1,255 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,258 days Is The Dollar Too Strong?
  • 1,258 days Big Tech Disappoints Investors on Earnings Calls
  • 1,259 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,261 days China Is Quietly Trying To Distance Itself From Russia
  • 1,261 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,265 days Crypto Investors Won Big In 2021
  • 1,265 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,266 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,268 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,269 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,272 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,273 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,273 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,275 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Be Careful What You Wish For

File this article from Bloomberg under the "be careful what you wish for" column. The article highlights market sentiment data from Investors Intelligence, and for the first time since March, 2009, there are more bearish newsletter writers than bullish ones. While the article wishes this was a good thing, the entirety of the data series would suggest that it is not so simple.

Figure 1 is a weekly chart of the S&P500 with the Investors Intelligence data in the lower panel. The green line is the bullish percentage and the red line is for the bears. As the article suggests there are now more bears than bulls and of course, this is just another reason why the stock market is going higher. But rather than be wishful let's look at the data in its entirety, and when it comes to Investors Intelligence that is a good thing because the data goes all the way back to 1969.

Figure 1. S&P500/ weekly

S&P 500 Weekly

So let's construct a simple strategy: let's buy the S&P500 when the number of bears exceeds the number of bulls; this is the red line greater than the green line in figure 1. We will close our position when there are more bulls than bears or when the green line is greater than the red line This is a simple enough strategy that produced the following equity curve. See figure 2.

Figure 2. Equity Curve

Equity Curve

Since 1971, such a strategy produced 72 trades; there were 49 winners and 23 losers. The ratio of the average winning trade to the average losing trade was .84. There were fewer losers but they tended to be bigger losses on average than the winners. But look at figure 2 more closely. From 1971 to 1988 this strategy made no money. From 1988 to 2008, the strategy performed admirably (or in a parabolic fashion), but starting in 2008, this strategy suffered its first significant pull back in 20 years.

As you can see, more bears than bulls isn't quite so simple.

 

Back to homepage

Leave a comment

Leave a comment