Market Sentiment

As the indices accelerate to the downside — the Dow Industrials are off 240 points as I type this — its as good a time as any to look at the current market sentiment.

These provide a snapshot into when traders and investors get too greedy or fearful. Typically, you can use these measures as a useful short term metric for timing entries and exits. 

And, these data points are much more reliable than the typical anecdotal sentiment discussions: "markets should selloff (rally), ’cause everyone I know is bullish (bearish)."

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 CBOE Equity & Index Put/Call Ratio

Put_call_ratio

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AAII Investor Bullish Sentiment Survey

Aaii_jan_08

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AAII Asset Allocation Survey

Aaii_asset_allocation_survey

What do these charts suggest?

This sentiment data implies that bearishness is getting very negative. Its not at the point where a rally is absolutely imminent, but we are slowly moving in that direction.

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Here’s our full report today: (click to open the full PDF)
Fusions_Analytics_Equity_Market_Review_Jan_2nd_2007.pdf

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For those of you who haven’t signed up yet, here’s the code for the free trial:

Go to the Fusion IQ home page , then select Subscribe. On the signup page, you will see a line that says Discount Code —  enter "BIGPICTURE07"

and click on update.  The
first 30 days trial is free, but you will need to enter a credit card
number — as long as you cancel before 30 days hence, you won’t get
billed.

 

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Jan 2

    Close over or under 13k???

    Over, and not because of any fundamental reason. The plungers are warming up as we speak……

    If it does close below 13k then I have to expect some wildly optimistic news out after the close..

    What say You

    Ciao
    MS

  2. Steve Barry commented on Jan 2

    The 10 day put call is around .95…long way to go to 1.3 which is a clear buy signal. For 6 months now, anytime QQQQ daily volume rises, the index drops like a rock. The market is rotten to the core. Short interest for the big QQQQ names is nonexistent. From Hussman’s site, S&P revenue was 940 per share last year…that is going to drop this year, conservatively to 900. Apply a historically high P/S of 1 to that and the S&P trades at 900. I see 2008 as potentially the worst year in S&P history, which is down over 43% (1931).

  3. techy2468 commented on Jan 2

    MS..

    when will you stop talking about the PPT??

    what if DOW does go to 12000, will you then accept that PPT cannot do much to keep things propped?

    Money managers, yes. but PPT is kind of too much tin foil hat stuff :)

    if things go down tomorrow, i think we are heading into oversold zone, does anyone else thinks so??

    it may be a good time to buy for some quick rebound, short term trade??

  4. Steve Barry commented on Jan 2

    Amazing things I have heard already…”recession will help tech stocks because downsizing means more technology is required.” This is ludicrous. Less people means less PCs, less software licenses, less blackberries. The other crazy thing is that $100 oil will not faze the consumer.

  5. cinefoz commented on Jan 2

    I’m waiting for S&P 1380, more or less, to signify a strong buy signal. Napkin charting, using a 3yr SPX graph from stockcharts.com, provides a good history.

    The first 1/2 provides a normal range for the S&P. Towards the middle you can clearly see the asset bubble of recent date. My hope and speculation is that the last of those who invest on hope will capitulate and the channel will fall back to the historical range. Thus S&P 1380.

    At that point, it will be profitable to buy and wait it out. The top of the historical range is only slightly below the recent credit fed highs of late if to look out towards the second half of the year. There is no reason this can’t be a massively profitable year for the patient.

  6. techy2468 commented on Jan 2

    steve i agree with you.

    but there may be something in favor of tech, companies had stopped spending on tech till 2005 hence they may not be able to cut down too much since their infrastructure is aging, so this time around if tech companies get discounted too much with other stocks….they may be a good buy when the market starts to recover.

    i am a bit bearish about equities though and i think its mostly created out of fluff, i need to see some good old dividends and Price multiples in 15s for companies with good balance sheet, before i will risk my money

  7. techy2468 commented on Jan 2

    steve..

    I am particularly interested only in companies like Cisco, EMC, Dell, Hp etc..

    and if the above companies get discounted by another 15%, it may be a good to think about buying.

    no interested in consumer dependents and expensive stocks like RIMM, AAPL, AMZN etc..

  8. D H commented on Jan 2

    I think the time of year makes these indicators a tad less reliable in the short term because today may be a preview of fund managers repositioning for a less optimistic year. This activity can take a few more weeks to taper off and leave room for the regular indicators to indicate based on their normal variables (i.e., ex- January repositioning).

    I also think breaking through more technical support levels may cause the fear to really spread before we have a catalyst that will create a predictable rally. But we won’t know until it happens.

    Thanks for the charts, Barry. Very interesting to see if the economy can get weak enough to give us another beautiful “excessive bearishness” buying opportunity. If not, there’s plenty of other ways to make money …

  9. H. MARR commented on Jan 2

    dear techy, care to share exactly what those money making ops are. I mean, EXACTLY , please? and thank-you.

  10. rickrude commented on Jan 2

    what’s with all the negativity ??
    My portfolio is up big time today with da
    commodities, the “Doug Kass doomsday portfolio” with oil and golds and some other sprinkling of anti – USD type commodities.

    Yippeee

  11. rickrude commented on Jan 2

    am a bit bearish about equities though and i think its mostly created out of fluff, i need to see some good old dividends and Price multiples in 15s for companies with good balance sheet, before i will risk my money

    Posted by: techy2468 | Jan 2, 2008 4:04:59 PM
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    Techy, by holding cash, you are helping the FED.
    As the FED prints money, you buy it with your hard earned wages and hold it and become a big loser in the inflation game. good luck.

  12. B commented on Jan 2

    one of your charts you make the comment- rally is not immenent just yet or something in those lines- that sounds like the fools on television “market has oversold”—- there are plenty of traders like myself, professionals- who do not subscribe to the santa clause rally may still come — come on

    BR: I wrote: Its not at the point where a rally is absolutely imminent, but we are slowly moving in that direction.

    Is that too nuanced for ya?

  13. justin commented on Jan 2

    We’re real close! Traders beware – this isn’t your average Bear. Watch the fundys they’ll let you know who cares.

  14. Steve Barry commented on Jan 2

    Just ran a QQQQ yearly chart and checked on balance volume. It is at the same level it was in early May when the QQQQ was at 46.5. So QQQQ rallied almost 9% on equal up to down volume. Volume on the few down days has been the same cumulatively as the many up days. In other words, volume on up days is significantly lower than the volume on up days.

  15. Chicago Finance commented on Jan 2

    But the Ticker Sense Blogger Sentiment Poll is as wildly bullish this week!

  16. Steve Barry commented on Jan 2

    I should have said in my last post “In other words, volume on up days is significantly lower than the volume on down days.”

  17. Suge Knight commented on Jan 2

    Suge is back b i t c h e s!!! and more bullish than ever, going to double down on margin at the open tomorrow! You know how we do! I’ll hang Bernanke from a balcony just like I did with Vanilla Ice.

  18. Steve Barry commented on Jan 3

    Finally figured out the URL thing…Eyeballing the Ticker Sense Poll, market seems to dive one month or so after Bullish peaks…in other words RIGHT NOW.

  19. curtis commented on Jan 3

    I’m a bit skeptical of the bullish sentiment graph. It says the market was “excessively bullish” in November of 2001, and January 2003?? It does appear that the market was as bullish after 9/11 as it was in 1999, which I somewhat doubt, but I have no clue how they get the data. It appears that it’s based on how fast the indexes go up, so if the DOW goes up 300 points in 5 minutes, it looks like it’ll be excessively bullish once again…

  20. curtis commented on Jan 3

    I’m a bit skeptical of the bullish sentiment graph. It says the market was “excessively bullish” in November of 2001, and January 2003?? It does appear that the market was as bullish after 9/11 as it was in 1999, which I somewhat doubt, but I have no clue how they get the data. It appears that it’s based on how fast the indexes go up, so if the DOW goes up 300 points in 5 minutes, it looks like it’ll be excessively bullish once again…

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