Bullish Newsletters Signal Market Downturn

The most recent issue of Investors Intelligence, which analyzes roughly 100 newsletter forecasts, has found that over 50.6 percent of writers are bullish versus 17.6 percent that are bearish. It’s a shocking, multi-year low for bearishness. Typically when newsletters are so widely bullish the opposite outcome is expected to play out in the market.

According to Benzinga, “based on historical probabilities and odds and the market’s regular performance over the course of the then following 20 sessions (regularly 1 month), the multi-year low with respect to the bearish newsletter writers may not be indicative that any kind of top is in, but at least the market shows a (significantly) above-average tendency for trading lower first before any (significant) gains may be achieved, and any year-end rally is not out of question, but may stand on shaky ground.” 

Viewed from this perspective, and in terms of timing, here is more reason to be skeptical of how much more steam the rally has in it. For details and tables, see Benzinga’s coverage of Investors Intelligence and expected market performance.