Market Sentiment

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 488

A different sentiment indicator than the combined American Association of Individual Investors (AAII) + Investors Intelligence + Market Vane's Bullish Consensus Surveys used by Henry, but which seems to be sending the same message:

http://tinyurl.com/y75txa

It's almost becoming routine. In fact, Thursday's new high for the Dow was its 23rd since October.

Yet, bullish sentiment among investment newsletter editors remains moderately below its all-time high. From the point of contrarian analysis, this suggests that the bull market has at least a short-term lease on more life.

Consider recent readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average stock market exposure among a subset of short-term stock market timing newsletters tracked by the Hulbert Financial Digest. As of Thursday night, the HSNSI stood at 52.0%.
This is nearly 20 percentage points lower than the level to which the HSNSI rose in late November, when the Dow was about 200 points lower than where it is today. In other words, in the face of a 2% rise, the average short-term market timer has become markedly less bullish.
That's an encouraging trend.

To be sure, the HSNSI's current reading of 52% is far closer to the high end of the HSNSI's historical range, which extends from minus 81.8% to 79.7%. So contrarians would not conclude from current sentiment levels that we're at the beginning of a major market advance.

Still, the HSNSI's decline in the face of a rising market does not bespeak the kind of stubborn bullishness that is typically seen at market tops.
Just contrast the current sentiment situation with what happened in March 2000 as the Internet bubble was bursting. In the face of the first 10% correction off that month's high, the average short-term stock market timing newsletter I track actually became more bullish, not less. Now that's stubborn bullishness, and isn't what we're seeing today.

The absence of stubborn bullishness is particularly evident among those market timing newsletters that focus on the Nasdaq market. The average exposure level of this subset of newsletters is reflected in the Hulbert Nasdaq Newsletter Sentiment Index (HNNSI). The HNNSI currently is some 25 percentage points below its level from late October, despite strength in the market that has propelled the Nasdaq Composite Index
to close at a six-year high.

The bottom line? Newsletter sentiment is not so low as to allow contrarians to declare that happy days are here again to stay. But neither is that sentiment so high as to generate contrarian sell signals. End of Story

zen · Newbie Joined: 02 Feb 2007 Posts: 2 Location: sunny, NJ

Could this all be psychological from Greenspan saying yesterday he thought there'd be a recession before end of year? Are words that powerful!

HenryTo · Posted: Tue Feb 27, 2007 2:03 pm Post subject:

Famous last words, indeed. Guess I was too impatient and did not wait long enough.

Now watching for an exit point.

HenryTo · Posted: Tue Feb 27, 2007 1:57 pm Post subject:

Yes, I guess the spillover effects of the Chinese downdraft and the subprime market were much more than what most expected - probably compounded by the prevalence of the Yen carry trade.

Goodfella · Veteran Poster Joined: 14 Oct 2005 Posts: 301

what a day!

Surprised

days like today is where the real money is made and lost

HenryTo · Posted: Tue Feb 27, 2007 1:48 pm Post subject:

Famous last words: Just bought a few Dow March contracts at Dow spot - 263.

Actual transaction is the March contracts between 12,325 and 12,321.

I will post my exit point as well. After March 8th, the March contracts will no longer be the front month but you can still trade them until March 15th.

HenryTo · Posted: Tue Feb 27, 2007 1:24 pm Post subject:

In fact, using the 9-to-1 ratio between the DJIA and the S&P 500, the former should be down by approximately 300 points now. Still watching.

HenryTo · Posted: Tue Feb 27, 2007 1:04 pm Post subject:

Hi Dash,

No, we will stick to the rules on the DJIA Timing System. I had meant in my personal portfolio.

Yes, I do intend to buy - but with two hours to go until the end of the trading day, the Dow Industrials can go down another 100 points for all I know. So I will sit and wait for now. Check back in an hour. Smile

Henry

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 488

Well, the DOW is now down more than 200 points. Were you serious about buying, and if you do would it be in the context of the model portfolio, which would mean you going >100% long no?

HenryTo · Posted: Tue Feb 27, 2007 12:53 pm Post subject:

Looking at the data again and it seems that most of the 6+ readings that I am getting occured during World War II (during the fall of France and during 1943 when it seemed like the Allies were losing), the top in 1946, and during the early 1950s. Actually prior to the October 19, 1987 reading, the last time the TRIN closed over 6 was September 26, 1955 - the day of the Eisenhower heart attack.

The October 27, 1997 reading coincided with speculators attacking the Hong Kong Dollar (during the midst of the Asian Crisis) the night before, and it also coincided with the huge margin call that Victor Niederhoffer got - the one that caused him to close down his best-performing hedge fund.

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 488

Thanks for the data Henry.

HenryTo · Posted: Tue Feb 27, 2007 12:36 pm Post subject:

Not necessarily a price crash, but this indicator does definitely indicate there is a lot of panic among folks who are trading TODAY.

According to my data, there has only been 34 instances since January 1940 when the NY ARMS/TRIN closed over 5.

And only 24 instances when it closed over 6; 21 instances over 7.

The last time the NY ARMS/TRIN closed over 5 was on March 24, 2003, and prior to that March 10, 2003 (closing at 5.81 and 5.01, respectively).

The highest reading over the last 10 years is the 10.2 reading we got on October 27, 1997, and yes, there were no >5 readings between that day in October 1997 and March 2003. And prior to that, you'd have to go back to October 26, 1987 (the Monday after Black Monday) to find another reading >5 (it closed at 12.11 on that day as investors who didn't get to sell on October 19th sold - making one of the biggest trading mistakes of their lives).

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 488

Intraday trin now 6.54 for those keeping score! Aren't these levels you'd normally associate with a crash?

I read recently (can't guarantee the accuracy) that the TRIN has only closed above 5.50 twice in the last 40 years: in March 2003 at the start of this latest bull market, and several days in 1987 during the crash.

HenryTo · Posted: Tue Feb 27, 2007 11:16 am Post subject:

Intraday TRIN reading at 4.75 and VIX up almost 20%.

Give me a Dow -200 points and I'll buy.

DJIA now below the end-of-year 2006 close.

Goodfella · Veteran Poster Joined: 14 Oct 2005 Posts: 301

its a crash alright

buy more if u got the balls Very Happy

HenryTo · Posted: Tue Feb 27, 2007 10:12 am Post subject:

I have an intraday NYSE ARMS/TRIN reading of over 4 right now. And a VIX that is up 15% on an intraday basis. Haven't seen these kind of readings in a long time.

This is either the beginning of a crash or a short-term bottom in the midst of an intermediate to longer-term uptrend. And given the strength and the healthy breadth of the market as recent as a week ago, it is going to need a much more deteroriation before we have a crash. So chances are that we are going to have a tradeable bottom very soon.

Henry