Trader’s Narrative

Yowza! Looks like nothing can keep this maket down. Not yesterday’s profit taking, which was long overdue! And certainly not the news that terrorists are in the advanced planning stages of a hit on US interests in Germany. One way or another the market finds a way to keep going up. So let’s take an overall look at the sentiment picture out there:

AAII
After last week’s historic reading, the AAII survey this week has ameliorated and now shows a tie with both bulls and bears at 43%. The AAII sentiment survey is now neutral and the only sentiment metric out of the group which is not showing more bulls than bears.

Market Vane
Market Vane’s Bullish Consensus is calculated by going through brokerage, analyst and CTA recommendations on a daily basis. Currently it stands at 72% bullish. But since early 2004 this has had a bias towards bullishness. The lowest it has been in the past 3 years is mid-50%’s. Since this sentiment indicator can get stuck either bearish or bullish for a length of time, we have to look at it on a more relative basis.

Investor’s Intelligence
Currently the II is showing 20% bears and 53% bulls which gives a bull ratio at 0.72. This is rather high, by contrarian analysis bearish. Evenso, we’ve seen the market power ahead inspite of II readings at this level. For more information on Investor’s Intelligence.

Consensus
This sentiment survey is similar to Market Vane’s in that it is comprised of brokerages, advisory services, analysts and CTAs. And like Market Vane’s it can become mired on one side of the sentiment landscape. Right now it is at 74% bullish, which is approaching 3 year extremes. From a contrarian point of view, this is bearish for the market.

LowRisk
The LowRisk.com survey is done online each week with participants filling out where they believe the Dow Jones will finish: up 2%, down 2% or unchanged. Since this is the most jittery metric, it is useful to take a short term moving average to smooth out the data. Right now, it is sitting around the neutral zone with almost as many bulls as bears.

It is fine to look at how market participants claim they feel about the market, but we still have to look at what they are actually doing. To do that, lets take a look at Commitment of Traders and short interest data:

Commitment of Traders
This data is from the Commodity Futures Trading Commission (CFTC) and shows how small speculators, commercials and large speculators are positioned in the futures markets. Right now, the small speculator - usually the market participant to fade - is positioned short. This would be bullish from a contrarian point of view.

Public Short Interest
This data is released by the NYSE with a 2 week lag. When the public is heavily active in shorting stocks, it has usually been a very good contrarian indicator that we are bottoming. Right now though, we are seeing a derth of public short selling which has pushed this indicator to the extreme seen usually at market tops.