Investors haven't become super pessimistic on stocks since the recent volatility bout began. That could be a bad thing. "Short-term sentiment is showing more pessimism, but more intermediate-term sentiment is still showing optimism," wrote Ned Davis Research analyst London Stockton. "During this seasonally weak period of the year and with election uncertainty, more pessimism could indicate a potential bottom.
On one hand, investors are hopeful the Federal Reserve will cut rates, giving a boost to equities . On another, concerns over an economic slowdown persist amid disappointing U.S. employment data. Wall Street is also anxiously looking ahead to the U.S. presidential election in November. So bottom line: It may take another bout of selling to shake out the weak bullish investors and restart the long-term trend.