S&P 500 at Highs, Investors More Bearish Than Ever -- Why?: StockTwits

NEW YORK (TheStreet) -- As I write this post, the S&P 500 (SPY) is within a whisker of new all-time highs. Again.

Yet the higher the index climbs, the more bearish the general investing public becomes.

Case in point: Derald Muniz shared a chart this morning that shows the trend of investor sentiment -- as measured by the American Association of Invididual Investors (AAII) -- steadily declining throughout 2014.

AAII Bull Weekly chart shows a decline in 2014 $STUDY http://stks.co/c0aMt

? Derald Muniz (@1nvestor) May. 22 at 11:00 AM

Meanwhile, on a more micro level, bearishly tagged messages on StockTwits.com continue to test their highest proportional levels in 6 months:

  Screen Shot 2014-05-22 at 9.10.51 AM 

Are investors trying to be too cute, outsmarting themselves? Are they all trying to front-run each other out the exit door? I've seen some extraordinary things in my 16 years in these here stock markets, but this situation is something that is highly unusual.

Cue the "this time is different" chatter!

The way I see it, either history repeats and the S&P 500 and Dow (DIA) follow the lead of small caps and correct -- thus validating this persistently bearish bent.

Or, maybe market participants get caught leaning the wrong way -- fueling a monster summer rally taking the S&P 500 north of 2000, causing casual investors around the country to reach for their mute buttons anytime the Rick Santellis of the world appear on TV.

Neither scenario is a sure thing, but it's best to begin preparations for both.

Check out more on the amazing stat that the S&P 500 falls greater than 10% each and every time the Russell 2000 has fallen by 10% since 2000 (35 times!). Please see this excellent blog post by Michael Batnick (@michaelbatnick).

Follow me on StockTwits: @chicagosean

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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