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This contrary indicator could be good for stocks

Stock market bears are growling.

According to an Investors Intelligence U.S. Advisors' Sentiment report, the number of bears in the market has increased to 30.2 percent, the highest level since late 2011 as fears of a global slowdown have investors running for the exits.

"The latest data shows more bears than bulls," the firm's John Gray wrote in the report. "That signals growing cash on the sidelines. Remember that sentiment is a leading market indicator," he added.

But according to one strategist, the preponderance of pessimism could, ironically, propel stocks higher.

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"Over the years looking at the markets, when you buy stocks when bearishness is very high and sell them into bullishness slowly, you do very, very well," Larry McDonald said Wednesday on CNBC's "Trading Nation."

For McDonald, however, that opportunity might not be in U.S. equities. "The percentage of bears [in the S&P 500] is still much lower than in 2008, so it can still get a lot worse," said the head of U.S. macro strategies group at Societe Generale. "I think investors should really look around the world."

McDonald used Brazil as an example of a contrarian play, noting the country's recent stock market turmoil. "The bearishness in Brazil is upwards of 60 percent," said McDonald. The EWZ, the ETF that tracks Brazil's stock market, has fallen 42 percent this year. "So, Brazilian stocks are cheaper and there are more bears there."

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From a technical standpoint, Todd Gordon of TradingAnalysis.com warned that the market could still retest its August lows. "It's very rare that we see this sort of sharp selloff and then such a feeble rally that we've seen on the way back up," he said. "Any type of bad news is accelerating the market and any kind of good news is being sold into," Gordon added. "I'm going to continue to hit the sell button until we get there."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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