Sentiment is extremely bearish. That means shares of the SPDR S&P 500 ETF Trust (NYSE:SPY) may rally.
It sounds counterintuitive, but there’s a logical reason why extreme bearishness may be good for the market. If the vast majority of investors believe the market is going lower, they sell.
When they are done selling there’s only one way the market can go. And that’s up. The market has run out of sellers so there isn’t anyone left to push it lower.
As you can see on the following chart, only 15% of stocks are trading above their 200-day moving averages. The last two times this happened were great buying opportunities. That may be the case now.
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