From my perch, equity market sentiment hasn’t been this poor since at least November 2012, just before equities posted one of their best annual performances ever. That doesn’t mean we are on the verge of another huge upside surge as every moment in the market is unique and equities are at a much loftier elevation now than they were in November 2012.
According the NAAIM Exposure Index (a survey of active money managers' market exposure) investors are at their lowest equity allocations of 2015, but still above the October 2014 ‘Ebola Panic’ lows:
It must be noted that this survey has about a 1-week lag to it so it’s far from a perfect snapshot of market participant sentiment, particularly during extremely volatile periods. I would venture to say that the average active manager has zero net equity exposure at this point and that many managers are moving to a short bias. We will probably see this show up in the NAAIM Exposure Index over the coming weeks save for a huge upside move, which serves to shift sentiment more bullish.
Meanwhile equities are carving out a volatile trading range and still remain well above their August 24 panic lows:
We could be in for a scenario like the one we saw during August-October 2011, when equities suddenly fell off a cliff only to carve out a violent trading range over the next several months. Or we could be in for a more decisive directional resolution (a rally back above S&P 500 2000 or a breach of the August 24 lows). However, when I see sentiment deteriorate sharply while price remains relatively resilient, it makes me say “hmmmmm” and it’s much harder to remain bearish.