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Sentiment Overview: Week Of December 19th, 2008 at Trader’s Narrative

Here’s a quick recap of this week’s sentiment analysis:

Last week the retail investor’s sentiment as measured by this survey was almost perfectly balanced. This week’s results push the bulls ahead with 39.73% of respondents and the bears at only 35.62%.

According to Wall St. lore, a bull market climbs a “wall of worry”. But according to these numbers, we don’t even have a pile of bricks.

Investor’s Intelligence
From ChartCraft’s sentiment survey of newsletter editors taken on December 16th, 2008: the bulls continued to tip-toe up, reaching 26.9%, while the bears were little changed (albeit up slightly) to 47.3%.

The important thing is that we aren’t seeing what I’d ideally like to see: a resounding pessimism, even in the face of a rebounding market. That makes it difficult to believe we won’t see some sort of weakness ahead.

ISEE Sentiment
Tuesday’s big up move pushed the ISE sentiment index (equity only) all the way up to 176. Which means that on that day, 176 calls were traded (to open) relative to 100 put trades. That is a tad high, definitely above average for the year, but not extremely high.

For the most part, the ISE is stuck in a frustratingly tight trading range. So far it has refused to show any real signs of fear, even during the most hair raising down days of this harrowing bear market.

CBOE Put Call Ratio
While I have bemoaned the crazy options market behavior lately, I decided to have another go at it. This time, I stepped back and looked at the 14 day moving average of the CBOE put call ratio (equity only). Surprisingly, things look much saner through this filter:
cboe put call ratio december 2008

Volatility Collapse
Finally! Volatility has collapsed and not a moment too soon. I was afraid my crystal ball was getting foggy. Turns out all it needed was a formidable double top from historic highs:
volatility index VIX december 2008

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3 Responses to “Sentiment Overview: Week Of December 19th, 2008”  

  1. 1 Michael Lomker

    I think you are correct. We will be testing the lows in the next few weeks to take the grin off of the bull’s faces.

  2. 2 blues

    Test the low… not even sure whatever we do will be of any good? All the money that we made trading will become what, if this were to come true?

    It seems it will 99.99%… is sad… maybe time to take your money and move to another country? Is going to be rough… If what happen to iceland were to happen here in America… then what? Our stupid government is trying to fight this crsis using what it cause it in the first place? More debt? Making sure people are borrowing more? WTF??

  3. 3 Michael Lomker

    I think the statistic is that bear markets last 1/3rd as long as the bull run that it is correcting. In Elliot wave terms it is believed that we have begun a Grand Supercycle correction. If that is true then we are ultimately going to correct the market from the beginning of recorded commerce. I’m about to turn 37 and I fully expect this to be (from a technical perspective) a bear market long after I’m dead.

    Does this mean you should buy guns, gold, and build a fallout shelter? No. After a while people become accustomed to how the market works and that becomes the new normal. If you read investment books prior to the 80’s you’ll find that they completely scoff at the idea of bull markets and all investors were cautious.

    If you still have money in retirement accounts there will be a better opportunity to pull it out in the next year. Since we didn’t rally above 1000 on the S&P on this move then we should see an even larger move in 2009. Bear markets do have magnificent rallies, but people need to learn to use stops…the days of buying and holding under the assumption that markets always go up is dead (and was a horrible assumption in the first place).

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