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Sentiment Overview: Week Of December 21st, 2007 at Trader’s Narrative





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Here’s this past week’s sentiment data:

Sentiment Surveys
Investor’s Intelligence (measuring the newsletter editors market bias) is showing a surprising amount of bullishness at 56.5%. This is a slight increase from last week. The II bears fell slightly to 22.4%.

In contrast to newsletter editors, the AAII survey (measuring retail investors) is showing only 36% bulls and 47% bears. Since last week the bears increased by approximately the same amount the AAII bulls decreased.

Although odd, this isn’t the first time these two sentiment surveys have been at loggerheads with each other.

Fund Flows
According to AMG Data, US mutual fund investors withdrew $15+ Billion from equity mutual funds (not including ETFs). Most of that was from domestic funds and the remaining from foreign funds.

This is HUGE!! I can’t really understand what is going on or even if this statistic is correct. If it is, it is larger than any weekly withdrawal for more than 6 years. It is even larger than what we saw in the darkest days of the 2002 bear market. Wow!

Some portion of this gargantuan number is due to the year end effect when mutual fund investors have their last opportunity to square things tax-wise. But as I already pointed out, this is nothing like we’ve seen in previous year end tax selling. Something big is going on. Obviously when people are selling their equity investments at such a torrent, it is wiser to exit the crowd or even fade it.

State Street Investor Confidence:
State Street Investor Confidence Chart

State Street is one of the largest financial firms in the world. They have a unique sentiment measure which relies on aggregate data from their position as custodians for investment managers:

Unlike other survey-based confidence measures that focus on expectations for future prices and returns, the Index provides a quantitative measure of the actual and changing levels of risk contained in investment portfolios representing about 15% of the world’s tradable assets.

The interesting thing is that this month, the State Street Investor Confidence Index plumbed depths which it had never seen in its entire history!

If you want to get more info on this sentiment indicator as well as full historical data (monthly), check out the FREE Trading Resource section (under Reports & Articles). While you’re there, be careful or you might find other interesting stuff to busy you for hours ;-)

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8 Responses to “Sentiment Overview: Week Of December 21st, 2007”  

  1. 1 Jim

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    One possible explanation for the large equity mutual fund outflows is that US consumers are selling assets to finance consumption, now that the home equity loan spigot is largely turned off..

  2. 2 scood

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    whooosh– I guess a little of that 6.5-7.5 trillion got put back to work today.Babak you got me worried when you started wavering last week, but it set off my ‘bucket indicator’ as in ” better get a bucket, I’m gonna throw up”. I’ve been ready to blow lunch or jump out the first floor window into the shrubbery for a few weeks now, but last week w/you & hulbert both harping on sentiment going up while the market cascaded down i was reallyready to puke. But I figured @ that point I’d throw you both in the contrary indicator pile w/the rest of em and bought some more, telling myself all the while I was a moron and would soon be broke and out of work. Feeling better tonite but i sure hope Mr Hi-Lo is right on, so i dont need another case of lomotil next week.
    Kudos again great stuff- I was probably a little early saying that about your last bottom call, as it still is, {early that is] but you look pretty solid again after today. Still, I dont think you’ll be right on the major averages, financials, trans, ect. rising, on the one hand and oil and gold falling on the other. They’re all laid together in a great big pile— maybe that was a sly move tho, at least you’ll be right on one or the other.
    Have a joyful holiday and many thanks.

  3. 3 Babak

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    Jim, could be, could be. But that is a very apocalyptic way of looking at it, isn’t it? You mean to say they’re selling their retirement funds to finance one last Christmas?

    scood, while it feels good to be lumped in with Hulbert, I can’t say I miss the irony of becoming a contrary indicator myself when I write so much about them (!) :-)

    All I do is report on what I see, and what the various indicators are saying. I don’t rarely get emotional and go with my “gut”.

  4. 4 scood

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    My, very scientific ” BETTER— better get a bucket” indicator [you remember Monty Pythons famously disgusting Mr Creasote] has been extremely accurate.Worked in 98 for oil drillers, 99-00for gold miners, 02-03 for steel cos, refiners, some tech, ag, metals, just about you name it. I think it worked great in 82 but cant remember– in 87 I actually wound up in the same condition as Mr Creasote so I was inoperable.
    How it works is, when the market has me in the same state as mr Creasote before he explodes, I either; if I can still walk, jump out the !st floor window into the scrubbery to relieve the pressure [this filters out events not dire enuf to be buying opps] OR if Im totally incapacitated by fear I can still probably move my hand to buy stocks [these are the moments of maxx opportunity].
    What I cant figure tho is how I could be feeling so bad right now when the major indexs are only a few % down from their hi-s and up for the yr, plus several sectors @ all time hi-s and many fine blu chips in many sectors also @ all time hi-s. Why does it feel like weve been in a 2 yr bear mkt? GO FIGURE. My guess is that the media is in a total paroxysm[sic] of totally irrational lemmingesk fear and has all the rest of us bozos in the same frame. When even the centers of clear, rational, “good” data driven thought [ like yourself & Hulbert] start to worry, well that does it, its unanimous. It was a very small window tho you only wavered a day or so.
    Of course the verdicts not totally in yet, we’ll see. Dont woorry about your minor defect of NOT FREAKING OUT who knows you might live higher than the 2nd floor– could be hazardous.

  5. 5 SS

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    Gee, the State Street Investor Confidence Index appears to be utterly useless on a historical basis to gauge excessive pessimism. While it is interesting to note that this measure is more bearish than ever, the numbers previously offered don’t appear to have any predictive value whatsoever.

  6. 6 pat

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    There is just something so bullish about this (from a contrarian viewpoint).
    Case in point: prior massive redemptions and outcome

    Maybe those gargantuan commercial COT positions really are signaling something big after all?

  7. 7 Babak

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    scood, thanks for the explanation, now I understand better what you meant.

    SS, yeah, you’re right but then again, it has never been close to this low… ever. So does that mean anything?

    pat, thanks for the link. Since I’ll see if I can work it in the blog so more can see it.

  1. 1 Sentiment Overview: Week Of January 4th, 2008


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