The latest weekly survey from the American Association of Individual Investors, probably the most closely watched gauge of investor sentiment, found 42.9% of respondents were bearish on the outlook for stocks, versus 29% bullish and 28.2% neutral.

That marked a more than 14 percentage point rise in bearishness from the previous week, marking the highest level of pessimism since mid-April. Bull sentiment minus bear 

sentiment, as illustrated in the above chart, has now fallen to negative 14%. 

Yet another way to slice the sentiment data, the bull ratio, dropped to less than 40% from more than 73% less than two months earlier, said Jason Goepfert of Sentimenttrader.com. The bull ratio is bullish sentiment versus total bullish and bearish sentiment.

Such a rapid deterioration in sentiment from such a high level has occurred 11 other times in the last 26 years, Goepfert said. Nine out of those eleven times, the S&P 500 index was positive a month later, averaging a gain of 1.7%, he said. The outcome less than a month or more than three months later was much more mixed, Goepfert noted, adding that while sentiment has fallen sharply, it's not yet at a level showing "extreme pessimism."

That would require a bull ratio of less than 35%, with a reading closer to 25% usually required to signal that investors are entering the "throwing-in-the-towel" phase.