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Sentiment Overview: Week Of December 4th, 2009 at Trader’s Narrative





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Here’s this week’s sentiment wrap-up:

AAII
The weekly AAII survey of retail US investors shows little change with the bulls still at 42% and the bears declining -8% points to 34%. It was just a month ago when the AAII flashed a rare extreme state of pessimism with 56% of respondents back then expecting lower stock prices.

As for asset allocation, the AAII members continue to hold a significant amount of equities (55%), but not as high as the historical maximum (76%). They are holding 18% in bonds which is above the long term average and the rest (27%) in cash or cash equivalents.

Investors Intelligence
The newsletter sentiment metric from ChartCraft continues to flash an extremely bullish reading for a second week. The share of optimistic newsletters didn’t change at 50% but the pessimists fell slightly to 16.7% from 17.6% last week. This is the third lowest number of bears since 1987. The other two instances were June 6th and June 13th, 2003. Here’s a long term chart comparing the Investors Intelligence bears with the S&P 500:

investors intelligence sentiment survey long term chart Dec 2009

Needless to say, this is a troubling development as we now clearly have way too many bulls and too few bears to be able to sustain a continuing rally. However, as you can see from the chart, the market doesn’t stumble every single time we’ve been here. The experience of June 2003 is a good example. On average though, the stock market has trouble pushing ahead in the weeks and months that follow.

Hulbert Newsletter Sentiment
The Hulbert Stock Newsletter Sentiment index jumped 43.7% points to 46.9%. While the huge increase in just one month is reason for caution, it is still not near its peak (80%). At this point, all we can say is that sentiment is behaving as it would normally; rising along with the rising prices. Although, the small advance we’ve seen in most indexes hardly justifies such a jump in bullish sentiment.

Crowd Sentiment Poll
This is a sentiment measure from Ned Davis Research and is an amalgam of seven individual sentiment indicators. I’ve mentioned it a few times before. Right now, it is 63.3% - that’s very close to 67.8%, where it has been at previous stock market tops.

Fund Flows Data
I already covered this fully in a previous post: Too Soon to Declare the End for Cult of Equities. See that for more, including a few interesting charts.

Option Sentiment
Option traders, especially retail participants, continue to throw caution to the wind. Instead of the usual ISE and CBOE data, I thought I’d show the chart of the Options Speculation Index from SentimenTrader.com:

options speculation index sentimentrader Dec 2009

This is a put/call ratio that Jason Goepfert calculates by considering only opening transaction from all US option exchanges. As you can see, we were at a multi-year high in optimism.

Volatility
Similar to the TED spread, volatility has once again reposed in slumber. We’re at 21 on the CBOE VIX index, where we last visited back in September 2008 - before all hell broke loose. Volatility is a great sentiment indicator when it is going bonkers at extreme highs but less so at lows. Historically, there’s been little correlation between low volatility and market tops. But what we can say is that things are sure quiet around here.

Commitment of Traders
The latest Nasdaq 100 futures Commitment of Traders report is showing the ’smart money’ (commercial hedgers) extremely short. This is the foot print of investment banks like Goldman Sachs who take the other side of large speculators (hedge funds) and small speculators (retail punters). If they are up to their gills in short futures positions, you have to ask if they know something you don’t. Especially since the last time they were even more net short was in October 2007.

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3 Responses to “Sentiment Overview: Week Of December 4th, 2009”  

  1. 1 grace

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    Regarding the NDX COT data…… even the commercials are net bearish. The current ratio of net long:short is .36. Looking at data back to Oct 1997, there has NEVER been a ratio this low. Usually the lowest this ratio gets is .60 and then bounces.

  2. 2 Larry

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    Someone just has to say this, it’s Saturday morning. I’ve just started my second cup of coffee while thinking more about flatulence than confluence. All after a very oppressive work week.

    I enjoy this website more so than others because;

    It’s objective with great graphics.
    While I have a good vocabulary, it contains fewer 3 syllable words than other sites.
    Finally I don’t have to wrack my brain when I’m trying to relax, grasping at meanings that require more thinking than necessary.

    That being said I’m fixing to proceed to the throne room.

  3. 3 j'adoube

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    Thanks for sharing, Lar.

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