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ISE Sentiment: Market Due For Recovery at Trader’s Narrative

ISE Sentiment: Market Due For Recovery

Alright, so by now we know that the ISE sentiment data on the official webpage is wrong. Thankfully I was able to correct it as best as possible. It helped that only the past few data points are suspect.

In any case, seeing how the ISE sentiment helped me turn cautious just at the top of this market swing, I’m not giving up on it yet.

But I’m reduced to using my own graph (see below) as their’s is wrong (and still neither corrected nor noted as such). Sheesh. I hope they get their act together. So the chart uses correct data (as far as I can be sure) not that crazy 51 data point.

I looked at the 10 day moving average as my guide, just as before. This time however this short term moving average is saying that the ISE sentiment index is about as low as it has been. Other than the March 2007 bottom, to find a similarly low reading we’d have to go back to the end of the bear market.

I’d still like to see atleast one day of major capitulation showing up on the ratio. Something in the range of 50-60. And atlhough we may get it, it may not be necessary. Rather than a whoosh down which has been the script so far, we could just meander and muddle through for a bit as people are bored to death rather than scared to death.

Click To Enlarge Graph:

ise sentiment august 2007.png

Thin green line is the 10 day moving average of the ISE Sentiment Index while the thick blue line is evryone’s favourite market proxy.

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8 Responses to “ISE Sentiment: Market Due For Recovery”  

  1. 1 Dave

    Thank you for the update. Where are you getting your ISE data from? I’m having a bit of a struggle with this because I don’t know how to tell what’s accurate and what’s not.

  2. 2 Aaron

    I think some good capitulation is what this market needs. The market is getting close to a panic selloff, but its not quite there yet. We need just a little more negativity and pessimism to let it bottom out.

  3. 3 Babak

    Dave, I called the ISE and also confirmed with Jason’s

    Aaron, problem is everyone is waiting for the other guy to capitulate ;-)

  4. 4 Dave

    I’m learning a lot by reading your excellent posts but the interpretation of the most recent ISE numbers, as foretelling a recovery, has me scratching my head a little.

    The reading is lower than it was a month ago, but it is significantly higher than last summer, or last March, when people really showed some panic about stocks. We’re approaching panic, but don’t have it yet.

    Hate to say it, but the stubbornly high ISE number suggests that lots of other people are expecting that it won’t be necessary for us to experience a more serious, steeper decline than we’re already experiencing. So, the ISE Sentiment suggests to me that this is probably going to get a good bit more painful.

    Do you follow the Citigroup Panic/Euphoria model? It is also stubbornly in neutral, although it, too, declined over the past week. This sentiment indicator gets a bad wrap as being too optimistic but it seems to have been appropriately optimistic in the past, in retrospect. Right now it is in neutral, which is somewhat unusual over the past several years. The last time it registered panic was in March. Note that this indicator takes into account advisor sentiment and monetary trends.

    Before I forget, institutional funds added about $10 billion last several days. Maybe institutions are just getting smarter, but I don’t think so. Another “optimistic” omen in my opinion.

    In sum, we appear to be in store for more pain.

  5. 5 Babak

    Dave, what puzzles me is that in the past week or so when the market has gone down oftentimes the ISEE would uptick. I don’t think that happened today but still as you say it is both puzzling and alarming.

    Q:what do you mean by inst. funds? do you mean fund flows? and where do you access the citigroup sentiment model? was this the one that was yanked from Barron’s?

  6. 6 Dave

    Babak, I get my money flows from AMG Data Services. The flows from last week include ETFs. in addition to other domestic fund inflows, and the sum inflow was $10 billion. I suspect such monies will be off the table when we truly hit bottom.

    Yes, I’m referring to the Panic/Euphoria model that was yanked from Barron’s. Nobody likes it. I could have been more clear about the issue of over-optimism. What I mean is this model tended to be in the panic zone for months at a time through the recent bull market. As a contrary indicator though, it turns out it was pretty accurate.

    I’ll post flows and the Panic/Euphoria if anyone is interested. Can also post insider trading data. Any way you can post AAII and Advisor Sentiment weekly?

  1. 1 Sentiment Overview For Week Of August 17th 2007
  2. 2 Forbes Fortunte Economist Magazine Cover Story Contrarian Sentiment

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