Terrific timely discussion chart from Mary Ann Bartels & Co. at MER showing the extent of bearish anticipation of a correction:
Investors Intelligence (II) sentiment data shows 34% of newsletter writers are expecting a correction. The prior two corrections occurred with this level at 34.7% and 35.1% respectively.
Bartels adds that “newsletter writers need to capitulate and remove their calls for a market correction in order to get a contrarian bearish sentiment extreme.”
When too many investors are looking for a correction, it reflects that selling has already occurred. That implies less supply, less downside pressure, and the potential for pros to be forced back in. It is the Long-only side version of a short squeeze.
The 6th best cyclical S&P 500 bull market still steady,
Stephen Suttmeier, Mary Ann Bartels, and Jue Xiong
Merrill Lynch, March 25 2013