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Sentiment Overview: Week Of April 23rd, 2010 at Trader’s Narrative





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Here is this week’s sentiment synopsis:

Sentiment Surveys
The weekly AAII survey of American retail investors shows a surprising drop in bullishness. While the market had only gone sideways by the time the survey was taken, that was enough to reduce by 10% points the number of bulls to 38%. Those expecting lower stock market prices increased to 34%. The result is that we have a bull ratio at 53% which is right in line with the average amount of bullishness the market is used to. The level I’m watching for this sentiment indicator is 68% or higher (that is, the percentage of bulls relative to bulls plus bears).

According to the other survey question, American retail investors have slightly less equity allocation in their portfolio than they have on average in the past:

AAII equity allocation long term chart Apr 2010.png
Source: Fusion IQ

Barry believes that this is a positive sign:

The fact that individual investors are not grossly over allocated to stocks at this point suggests they still have a fair amount of liquidity to invest. As long as liquidity remains favorable stocks should not experience any deep setbacks.

That is true for the short term but for anything beyond that we need the participation of retail investors. And as we’ve already talked about at length, they have abandoned the equity market in favor of the bond market. For the first 2 weeks of April the trend continues with inflows of just $2 billion for domestic mutual funds and $12 billion for bond funds.

Investors Intelligence
In contrast to the retail investors, the average stock market newsletter editor tracked by ChartCraft is now much more bullish on the market. II’s bullish sentiment increases to 53.3% from 51.1% while bearish sentiment decreases to 17.4% from 18.9%.

This survey was conducted early in the week so it bears noting that this level of optimism was before the market made new yearly highs. As I mentioned before the level I watch for this sentiment indicator is a ratio of 3:1 for bulls relative to the total of bulls and bears. With this week’s result we are once again above that ratio. The last time the bull ratio was this high (or higher) was in at the start of the year - just before the market stumbled.

NAAIM Sentiment
Active managers returned tentatively to a more bullish posture. The average manager is now 81.64% long the market. This is third in four weeks that the average market exposure has been above 80% long and it is just under what we saw at the beginning of the year.

Gold Sentiment
According to an online poll conducted by Commodity Online, 93% of respondents expect gold prices to fall. While the survey had a very large sample size, I’m not sure about the quality of it (especially since it was done online). The consensus was that since investors are once again comfortable with risk and since equity markets around the world are strong, there is going to be less and less demand for gold.

As I’ve shown again and again, gold is not a safe haven. It didn’t protect anyone in any stock market crash. It is just another trading vehicle. Gold stocks especially tend to move in line with the broader market. The real safe haven of choice again and again has been short term US government bonds.

Option Sentiment
ISE sentiment 10 day moving average Apr 2010 update

The 10 day moving average of the ISE equity only call put ratio closed at 231
lower than 249 from last week but still very high

CBOE equity only put call ratio closed the week below 0.50 - meaning that once again, more than twice as many calls were traded as puts. The 10 day moving average is slightly lower at 0.47:

cboe equity only put call 10 day moving average Apr 2010 updated

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2 Responses to “Sentiment Overview: Week Of April 23rd, 2010”  

  1. 1 Wayne W

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    Babak/readers

    Check out the ratio of insider buyers to sellers as well.

    And Robin Carpenter of www.CarpenterAnalytix.com calculates that futures-trading hedge funds’ exposure to stocks is higher now than it’s been in all but 5% of all weeks since the Beginning of 2000.

    Your statistics from AAII showing how fast individuals are prone to flip from bullish to bearish, much as they did in January, would give one reason to believe that a pullback should be short and swift again as well. This person’s opinion is that not enough time has passed since October of 2008 to put the conditions in place for a bubble type collapse in prices, which is supported by the continuous sampling of positive intermediate time frame momentum forces that you have outlined in several of your post.

  2. 2 PEJ

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    Babak, thanks for the report.
    The C/P ratio is 2 standard deviations away from its mean. Quite telling!
    Wayne W, thanks for the valuable insights.

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