Institutional Sentiment & Analysis Weekly 3/02/08
Published Sunday 3/02/2008
By Mark Young of Equity Guardian Group
Short-Term Sentiment: Neutral to Bullish.
Overall Intermediate-Term Sentiment: Bullish.
Individual Investor Sentiment: Very Bullish.
Small Speculator Sentiment: Bullish.
Small Hedge Fund/Manager Sentiment: Mildly Bullish.
Longer-term Trend: Bear.
Intermediate-term Trend: Bullish. Un-Confirmed.
Short-term (one-day) Signal:
None. We can look both ways. Support held Friday.
We are trading these signals and others intra-day for our Premium subscribers--contact us for details.
Ideal ETF Portfolio (tracking portfolio):
50% long DIA at 127.54.
50% long UWM at 50.61
I'm about fully long. I'm nervous. I may lighten up.
Introduction
The late volume was Bullish so a long trade over Sunday night is possible, but I'd wait until 3:00 at least. Weekend trades are riskier. There was some really excessive Bearishness this week.
Results of the Wall Street Sentiment Survey (formerly known as the Fearless Forecaster Sentiment) taken after the close on 2/29/08
Response was to this question: "At the end of next week will the S & P 500 close up (bull), down (bear), or unchanged/no opinion (neutral)?"
Weekly BULLS: 16%
Weekly BEARS: 58%
Our `Smart Money' Pollees were 0% Bullish and 50% Bearish.
Our Amateur Trader Pollees were 50% Bullish and 50% Bearish.
The Senticator is Neutral.
Last week, given the evenly split WSS Surveyees, our call was for a rally up into Wednesday, and then chop lower into Friday. We left open the possibility of hard down, too which we thought would probably be a buy. The S&P rallied into mid week and fell hard, as we feared it might. I think we can take an A for that call though we were a bit more constructive than the market warranted so we can't take the +. Remember, these predictions are for demonstration purposes and are not a substitute for trading discipline.
The Mechanical Senticator and the Subjective Senticator Model sat flat due to a neutral reading. Note that the Senticator Models are based upon only one indicator and do not reflect our overall opinion. If the Senticator is Bearish or Bullish, the Mechanical model HAS to go short or long.
Proprietary Surveys
This week, the WSS Surveyees are heavily Bearish. The "Smart Money" guys are pretty Bearish too, and the "Amateur" pollees are neutral. The Senticator is Neutral, so no help there. The heavy Bearish lean among the WSS Surveyees is a pretty Bullish sign. This is offset by the lack of outright pessimism in the "Amateur" poll. The only caveat is that we've noted a decrease in participation in this poll.
Message Board Sentiment
The message board sentiment poll shows Bulls at 31% and Bears at 45%. This is technically Bearish, since this crew tends to be right more often than not, at least for a bit. Participation was better, but below average. The Actual Position Poll has 21% fully long and 21% partially long. 7% are partially short and 21% are fully short. This is just above my 20% threshold, which is Bullish, but we still have a lot long Bulls. The flip side is that this crew often positions correctly at highs and lows. The 5-day Fully Long/Fully Short ratio got a hair from Buy territory and it remains just below 100% in what is still an up trend. That's technically Bullish. The weekly Fearless Forecaster Poll shows 69% Bears for the week. That's Bullish.
Check out www.traders-talk.com for early updates of the sentiment polls every day.
Our T-4 Turn Indicator went out at 72 which is surprisingly away from a signal. Typically we want to see readings above 80 or higher before we look for worthwhile turns. This indicator doesn't catch every top and bottom, but it is a great "Heads up!" indicator.
Options Sentiment
Daily P/C ratio: 1.27. Bullish.
10-day P/C ratio: 1.08. Neutral.
Equity P/C ratio: 0.84. Constructive.
OEX PC ratio: 1.42. Neutral.
OEX 10-day PC ratio: 1.21. Constructive.
OEX $-weighted* P/C ratio: 3.22. Buy.
QQQQ $-weighted* P/C ratio: 3.47. Buy.
ISEE Sentiment Index: 75. Buy.
Relative VIX: Neutral.
The options data are pretty Bullish. ISEE and the $-weighted P/C's are showing a ton of pessimism, though the nominal P/C's aren't. Neither is the VIX. Market Harmonics' Options Buyers Sentiment Gauge is still down at levels that marked prior lows of importance and has turned up. Overall, this is constructive, but we may have to see a bit more weakness first.
OBSG chart
The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is too optimistic, under 100 is too pessimistic. *$-weighted P/C data courtesy of Fari Hamzei of www.hamzeianalytics.com . Readings over 2.0 are Bullish and near 0.5 are Bearish. OBSG provided by Tony Carrion of Market Harmonics.
General Public Polls
TheStreet.com is showing 21% Bulls and 62% Bears on good participation. That's a huge Bearish shift. This is about as many Bears as going into the January low. Of course, we had to see two more days of some ugly and wild trading to make the low.
TSPTalk's weekly poll shows 34% are Bullish and a whopping 53% are Bearish. That's Bullish.
Last week, AAII reported 34.31% Bulls and 45.26% Bears vs. 33.18% Bulls and 44.70% Bears. A rise in Bullishness and a rise in Bearishness. We're still in Buy territory and we've been here for 16 of the last 17 weeks, which supports a rally of more significant duration. This implies that the low is in.
Investors Intelligence reported that Bulls rose to 42.0%, and Bears rose to 36.4% vs 41.6%, and 33.7%. That's a small Bullish shift and a solid Bearish shift. I had expected rising Bearishness on a pullback, not on a rally. We're not far outside Buy territory.
LowRisk.com shows 34% Bullish vs. 46% last week and 41% Bearish vs. 36% last week. That's modestly Bullish.
Mark Hulbert's HSNSI stayed 4.2% and Nasdaq advisors remained at a Beared-up -42.9% (i.e. almost half short). That's a lot of Bearishness, but it's possible that with the holiday, Mssr. Hulbert didn't update. Still, from here I suspect a rally to be lead by the Nasdaq.
Lazlo Birinyi reported that bulls were at 33% and Bears were at 33% in his poll, which is perfectly neutral, though even splits often suggest a change in market character, at least in other polls.
Rydex Sentiment
Our Rydex data showed Bull funds had $4MM (net) outflows on a down day. The non-Dynamic Bear funds saw $1MM of (net) inflows. It looks like the amateurs were dumping longs and just nibbling at a few shorts. That's probably still Bearish. Dynamic Funds saw net Bull fund sells of $33MM, and Bear fund net sells of $35MM. The Dynamic players appear to be confused and pulling in their horns. That may or may not be smart money, but I'm pretty sure that they don't FEEL smart (I know I don't). This data isn't as useful as it once was. The often-right Russell Dynamic player(s) are adding longs and dumping shorts. That's better news. They were right the last time, though thus far they appear to be early.
Conclusion
Friday, I said that trading was pivotal and if we were to recover, we would turn the weekly trend up, and if we couldn't, we could be headed for a test. We didn't and now a test is in play. Last week, I said that breadth could stand to see some sustained improvement, but technically that, and the other technicals were reasonably positive. We managed to turn and confirm all of the intermediate-term stuff on Wednesday. That marked the start of this sell off. Now THAT'S frustrating. This weekend, the data is interesting. The technical situation deteriorated significantly, but none are confirmed negatives, as yet. Meanwhile, we have an absolute ton of Bears in the larger public opinion polls, and the speculators are heavily paying up for puts. Now, this deep sell-off in the face of some supportive sentiment and decent technicals is Bear market stuff, but the rules of the game haven't changed that much. The excessive Bearishness is going to make it hard to keep this market down if the selling pressure will come off just a bit. Basically, any little excuse could send this market up dramatically. Of course, there are no guarantees of getting that excuse before a re-test. We just have to watch the short-term trading. Early hints are Bullish, but it's too soon to tell.
Big picture, we still believe that we are in the range of some sort of low-- or that such is behind us. It's quite possible that we have an important low in place, but now we have to allow for a test or lower lows. Things are very fluid here. The pessimism is thick. I personally can feel it. I actually have an aggressive desire to get short, in fact. That means that there's a lot of folks who are also short and looking to add. That's usually a prescription for a sharp rally. It's just that it can take some time. It's imperative that traders have a plan in this environment and that we maintain our emotional composure. When we should be buying most, we're going to be least inclined to. That means that those who are sitting on cash and who want to own individual stocks should be accumulating names that they can live with on this weakness. As part of a discipline, some money should be committed to the best looking issues every time we get broad selling. Similarly, in this environment, leave yourself room to be wrong. The volatility, both higher and lower, can kill you or at least wear you out emotionally. Make sure you've got enough emotional fortitude left to be doing the buying you should be when we turn.
Our call for the week is for weakness on Monday early, and then a reversal higher. Depending upon the sentiment on the turn I'd be looking for either a pullback on Thursday into Friday or if the rally starts later, for strength to hold the week.
The Mechanical Senticator will sit flat and so will the Subjective Senticator Model. Remember, these models must trade in the direction of the Senticator or not at all.
We do not have a ST Sentiment signal. The late volume tell was Bullish. Since we've been publishing our ST Sentiment Signals, we've had 80 trades and 55 winners. We're much more active now and I'm offering more set ups when I'm not going to be around. If you'd like a trial, feel free to contact us.
Ideal ETF Portfolio (tracking portfolio):
50% long DIA at 127.54.
50% long UWM at 50.61
I'm about fully long. I'm nervous. I may lighten up.
Past performance is no guarantee of future returns. All information included in this missive is derived from sources we believe to be reliable, but no guarantee can be made to that effect. None of the forgoing should be construed as an offer or solicitation to buy or sell any security. The publisher may have a long or short position in the funds or securities discussed at any given time. We aren't your advisor, unless you have a signed contract with us. Please review any trade that you do with your trusted advisor FIRST.
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Trade Well,
Mark Young
Editor
www.WallStreetSentiment.com
ABOUT SENTIMENT AND ANALYSIS
The Wall Street Sentiment Survey is taken each Friday from a generally static pool of experienced technical analysts (both private and professional). The Wall Street Sentiment Surveyees are not normally a good fade, though there are times when they can be.
The Wall Street Sentiment Survey data are useful on the short term; they tend to be right. Typically they are right sooner rather than later, if there's a large plurality. On the flip side of the equation, if 90% or more are Bullish or Bearish, the odds of them being right over the very short term are huge, but the odds of a major turn (in the opposite direction) soon thereafter are also quite good.
We have also found that when the Wall Street Sentiment Surveyees are evenly split, look for a BIG move in either direction, but usually down.
Over the years, we have found a number of other tools to help in evaluating the Wall Street Sentiment Survey. We publish this in our weekly "Institutional Sentiment & Analysis" (a part of our institutional research). These additional tools are our "Smart Money" poll, Amateur Trader survey, and our Senticator. All are proprietary surveys conducted by us.
We have found that the Senticator tends to be right by the end of the week (as much as 82.7% of the time), though it tends to be more accurate in a rising market than a falling one.
The "Smart Money" pollees are very useful when there is divergent opinion. It's generally NOT a good idea to fade the "Smart Money" unless "'EVERYONE'" (all sentiment measures) is in agreement. When in doubt about the meaning of the Wall Street Sentiment Survey, defer to the "Smart Money" poll or fade the "Amateur Survey". The "Smart Money" guys are folks with whom I've worked or whom I've watched for YEARS. They all have different approaches and they're all VERY good (not infallible, just good analysts/traders).
The Amateur Surveyees are your classic more emotional traders who tend to be wrong when they are heavily leaning in any one direction--which is often at a turning point.
In addition to these surveys, we chronicle multiple other polls and surveys including those conducted by our sister firm, Traders-Talk.com. We also review options data and fund shifts at Rydex. Additionally, we are also the sole publishers of the T-4 indicator created by Traders-talk--wish is a fantastic turn indicator.
Subscriptions to Institutional Sentiment and Analysis are $99 per year. This also includes special sentiment updates and reports. Our polls are unique and insightful, and our analysis is some of the most accurate on the Street.
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