Trader’s Narrative

According to the Hulbert Financial Digest, stock timing newsletter editors en masse abandoned the market as the October highs melted into November losses.

Back in October, as the market was making a swing high, newsletters recommended an average exposure of +50% - that is, an allocation of 50% of a portfolio to the long side.

Last week, as both November and the market swoon ended, the editors had jumped ship and were actually suggesting an exposure of -13% - an allocation of 13% of a portfolio to the short side.

Although this is not the most extreme short allocation and sentiment has recovered somewhat since then, the way that they jumped so fast from a bullish stance to a bearish one, is telling from a contrarian point of view.

Had the decline been met with disbelief, or worse, an increase in bullishness, then I would be really worried. But sentiment agrees with the other technical data and we are already seeing a recovery, as I thought we would.