Market Watchers Wax More Pessimistic

In another indication that sentiment about stocks is turning increasingly negative, pessimism about U.S. stocks jumped to a 14-month high among professional market watchers last week, according to a poll by Investors Intelligence newsletter.

The percentage of financial consultants who considered themselves outright bearish, or pessimistic, jumped to 36.2, its highest level since October 1999, from 30.3% a week earlier. Those who considered themselves bullish, or optimistic, fell to 51.4% from 54.1% previously.

To some investors, this is actually an encouraging sign that the market may finally be bottoming out. Technical analysts, who try to predict market moves based on price patterns and other statistical measures, track investor sentiment as a “contrary” indicator.

When bullishness reaches a low and bearishness a high, it’s considered a sign that a rally could be near because investors who view the market less favorably may be saving cash to invest later.

In contrast, many technical analysts see strong optimism as a sign that stocks may be poised to fall. Bullishness reached a 13-year high in May 1999, at 61.6%.

Last week, not only did the bearish ranks rise, but the percentage of advisors expecting just a modest drop in the market in the next 12 months, the newsletter’s definition of a “correction,” fell to 12.4%, the lowest level since May 1999, from 15.6% a week earlier.

Still, the bulls remain in the majority. At 51.4, the bullish percentage is about where it was in March, when Nasdaq peaked.

Last week--the period covered by the survey--the Nasdaq composite index fell 5.1%, the Standard & Poor’s 500 index lost 0.5% and the Dow industrials rose 1.9%.