This decline of 23% is one of the largest one-week drops in bullish sentiment in the past 20 years.

There are a few caveats with this:

1.  The decline comes from a very high level of bullishness.

2.  The bulls didn't turn into bears; they mostly went into the "correction" camp.

3.  Declining sentiment from high levels tends to be bearish for the market, not bullish.

To that last point, let's go back to 1969 and look for any time that the Bullish percentage dropped at least 20% in one week.  We'll only look at the 20 instances that had the highest percentage of Bulls to begin with.

We can see from the table that performance going forward wasn't all that great.  In fact, the S&P under-performed a random return across all time frames, particularly in the shorter-term.  Generally, the higher the Bullish percentage, the worse the short-term go-forward performance in the S&P.

Big drops in bullish sentiment can be a powerful contrary force, as the quickly converted realize their mistake and buy back in.  But that's most useful when sentiment is already poor and we're seeing the "puke" phase of a decline.  Drops in bullish sentiment from extremely high levels tend to have the opposite effect and kind of feed on themselves.  More than anything, this is a modest negative for the market and not a contrary buy signal.

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Jason Goepfert