Excessive Bearish Sentiment

The 09/01/22 blog “Day of Decision -09-02-22” illustrated that The S&P 500 (SPX) 09/01/22 bottom was made without an  hourly RSI bullish divergence.

The hourly SPX chart courtesy of Trading View updates the action of the RSI indicator. 

On 09/06/22 the SPX broke below the 09/01/22 bottom. It also  marginally broke  below the rising  trendline from the  06/17/22 bottom and the Fibonacci .618 retracement of the rally from 06/17/22 to 08/16/22.  The breaks  were small and within reasonable leeway.   

It also created a significant bullish RSI divergence.

Also note that the RSI high on 09/07/22 was above the level recorded on 09/02/22. This  implies that soon price could be above the 09/002/22 high. 

The daily SPX chart reveals  some fascinating  sentiment data.

The Market Vane Corporation polls  Futures traders from various  markets.  The polling data derives a Bullish Consensus reading.  High percentage reading  come near market tops, low readings  near bottoms.  Divergent readings  can also  signal potential turns. 

For the SPX bull market that began in March 2020  the lowest reading  came on 03/24/20 at 28%. The SPX crash  bottom was 03/23/20. 

The highest SPX bull market reading was  68% on 11/02/21.  The reading at the SPX all-time high on 01/04/22 was 67%.

Note that just before the SPX 2022 bottom on 06/17/22 the reading was 41%.  The SPX bullish consensus reading  for the week of 08/29/22 to 09/02/22 was 35% a significant divergence.

The relatively low reading of 35% and the divergence  implies  excessive  bearishness.

If the SPX 09/06/22 bottom is  not broken, there’s a high probability that a multi-week rally may have begun.