Investor pessimism hits three-month high as FOMO turns to 'oh, no'

- Optimism has fallen by a total of 17.1 percentage points over the past three weeks -

By Ryan Vlastelica, MarketWatch

Investor pessimism has spiked in the past week, according to the latest AAII Investor Sentiment Survey, which showed bearishness hitting a three-month high.

According to the weekly survey, 35% of investors described themselves as bearish, meaning they expect stocks to be lower in six months' time. This represents a jump of 6.3 percentage points from the previous week-before Wall Street stocks began to tumble-and it marks the first time in nine weeks that pessimism was above its historical average of 30.5%.

The last time pessimism was at its current level was in November, according to the survey, which noted that, despite the shifts, "at current levels, all three sentiment indicators are within their historical ranges."

The number of market bulls fell by 7.7 percentage points to 37% in the latest week, a two-month low that is just barely below its historical average of 38.5%. The reading snaps an eight-week streak above that long-term average.

The survey may not fully convey how investors feel about the market's correction, and AAII noted that the timing of when members voted could have had an impact. Voting in this week's survey was open between Thursday, Feb. 1, and Wednesday, Feb. 7. That means voting was closed before Thursday's session, with major indexes officially entered correction territory, falling 10% from an all-time high hit last month.

Still, optimism has been trending lower. Over the past three weeks, optimism have fallen by a total of 17.1 percentage points, while pessimism has risen by 13.6 percentage points. "Such a shift is not unexpected given the market's recent volatility and the recent streak of unusually high bullish sentiment readings," AAII's analysis read. In early January, bullish sentiment spiked to a seven-year high of 59.8%, in what was interpreted as a contrary indicator.

The ratio of investors who are neutral on the market is at 28%, up 1.5 percentage points from last week, but still below its long-term average of 31%.

The spike in pessimism comes amid some heavy selling in equity markets, including the biggest one-day percentage drop for both the Dow Jones Industrial Average and the S&P 500 since August 2011. Monday represented the single-largest one-day point decline for the Dow in its history; Thursday represented the second-largest.

From MarketWatch