As the Dow trades below 10,000 and the S&P 500 makes new lows for the year, one of the most troubling aspects of the decline seems to be that many investors don't seem to care. One would think that with the VIX trading above 50, and CNBC getting record ratings, that there would be a strong sense of panic among investors. Typically, this is reflected in increased bearish sentiment. However, according to two of the most widely followed sentiment polls, investors are less bearish today than they were during other declines earlier in the year.
In the charts below, we show the weekly bearish sentiment readings for both the AAII (blue line) and Investor's Intelligence (red line) polls. The AAII poll which targets individual investors stood at 55% last week. Unfortunately, AAII sentiment reached more negative levels at the short-term bottoms in January, March, and July of this year. The Investors Intelligence poll which targets newsletter writers tells a similar story. As of last week, bearish sentiment was 47.2%. At its highest reading in July, bearish sentiment hit 50% when the S&P 500 was 12% higher! Bottoms are formed when bearishness hits extreme levels. If last week's declines weren't enough to do it, what will it take?