Investor Confidence Is So Low, We're Either In For A Bounce... Or A Major Crash

The latest AAII investor sentiment reading, via PragCap, shows bullishness near its extreme lows, a signal that that we could be in for an extended bounce.

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BTIG’s Mike O’Rourke discussed the the issue in his note last night:

This week’s reading of 26.8% Bullish  (Bulls/(Bulls+Bears)) is the lowest reading since March 5th of last year.  The way we apply this indicator is in a typical market environment.  We use 40% as a buy threshold, and in a bear tape we tighten the parameters and use 30%.  We consider the move since the April peak a correction within a bull market.  Therefore, a 26.8% bullish reading is something we believe is worth being excited about.  As the table below illustrates, the forward returns on readings below 30% Bullish healthily outpace typical returns. The caveat as well as potential positive is that the ugly readings registered in 2008 are included and 2008 also posted some very ugly returns.  

 So yeah, we’re almost certainly going up. Unless we go way down.

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