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It's amazing what a 5% decline will do to investor sentiment. Following the declines of the last two weeks, more newsletter writers are looking for a correction than at any other time since 1984. According to the most recent survey by Investors Intelligence, 38.9% or newsletter writers are expecting a correction, which is the highest level since 1984. Adding together the percentage of investors who are looking for a correction to those who are outright bearish shows that 61.1% of those surveyed currently expect the market to decline. As shown in the chart, this would be the highest level since early July when the S&P 500 was in the late stages of its Summer correction.
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Your analysis with this chart seems to imply that people are overly bearish. However, the problem is that you need to take that number within the context of whether it's a cyclical bull or bear market. Look at the extreme readings in Sept. '08. The majority was correct and far lower prices were ahead because it was within the context of a cyclical bear market. I'm actually more concerned that very few are outright bearish (22%) which means 78% believe strongly that the cyclical bull market did not just peak in January. I'm also concerned because I count myself in with that 78%. If the market does what the least are expecting, then I think very few would say that we are already in another bear market. It's definitely a minority opinion compared to outright bulls (approx. 38%). The point is that your analysis makes sense in the context of a cyclical bull but not a cyclical bear. When I see 38% expecting a correction and then a correction actually happens, what I see is 38% jumping in on this correction assumption and then finding out at lower prices that they have been caught holding the bag. Then you get panicky sellers. That's how a bear market works.
my view is that we are in a cyclical bull market (2009-2011?), within a secular bear (2000-?)
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