The Yale School of Management conducts a few surveys that measure investor confidence on a monthly basis. One of them is their Crash Confidence survey that asks both institutional and individual investors how confident they are that there won't be a market crash in the next six months. Below we highlight the historical survey results on top of a chart of the S&P 500.
In November, the individual Crash Confidence reading reached its lowest level ever at 22.73%. As the green line in the chart shows, the prior low in Crash Confidence was in October 2002, which was the ultimate market low during the '00-'02 bear market. The institutional Crash Confidence reading isn't as low as it got in October 2002, but it's very close. This negativity is actually a positive for the market going forward.
Please explain: "This negativity is actually a positive for the market going forward."
Posted by: Bob Brill | December 27, 2008 at 12:45 PM
Bob,
It's a contrarian indicator. If the sentiment is negative, then that means all the sellers have sold, thus the market is due to go up from here. That's the rationale.
Posted by: Tony | December 28, 2008 at 07:24 PM