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Sentiment Overview: Week Of February 12th, 2010 at Trader’s Narrative

Here’s this week’s sentiment summary:

Sentiment Surveys
The weekly retail investor option sentiment gauge from the AAII showed a small uptick in bullish sentiment (from 29.2% to 36.8%). Meanwhile, those expecting the stock market to decline in the following 6 months were little changed at 41.9% (down 1.2% from last week).

In contrast the Investors Intelligence shows the bullish camp melting even more: bulls came in at 34.1% (down from 38.9%) and the bears increased to 26.2% (from 22.22%). At this rate we are fast approaching parity for the two camps. This is a marked difference from late 2009 when we would repeatedly see the bulls outnumber the bears by a 3:1 margin.

Most intriguing is the jump in the third category, those newsletter editors who are expecting a correction. At 39.7% the correction category is the largest we’ve seen it since the 1983. Since so many are now expecting a correction, ChartCraft, who compiles the data, believes in contrarian fashion that this means we won’t have one.

Bloomberg Professional Global Confidence
The BPGC index fell slightly this month to 54.9% (from the devilish 66.6% reading last month). But since it is still above 50%, it indicates an overall positive outlook with more optimists than pessimists. This is now the 7th consecutive month of positive readings. The BPGC index is a very young sentiment metric since it has only been compiled for 2 years so we’ll have to be patient and wait for more data to come in before we can make any inferences.

Respondents this month were very bullish on the US dollar - 55.72%. That’s the highest BPGC level for the dollar since November 2008. That should be ringing alarm bells in the heads of contrarians since the dollar formed a large top in late 2008.

Bond Sentiment
While retail investors are falling over themselves to put their money into bonds, Wall Street investors are more sanguine. According to a survey conducted by JP Morgan among fixed-income investors (as of February 8th) only 10% were bullish - compared to 26% from January. In contrast 27% were bearish (in January bond pessimists numbered 22%).

Small Business Sentiment
According to the NGIB, US small business optimism is slowly returning. In January the NFIB’s optimism index gained 1.3 to reach 89.3 - the highest since September 2008. As good as that seems, keep in mind that during recessions this indicator averages 92.0 and during periods of economic expansion it averages 100. Only 10% of small businesses that took part in the survey had job openings and none planned to increase employment.

Option Sentiment
As the market meandered in volatile but trendless trading, there was little movement in the option sentiment indicators like the CBOE put call ratio or the ISE Sentiment index. In fact, the 10 day moving average of the equity only ISE Sentiment which I track did not budge at all. So option traders closed the week at about the same place where they opened it. For more details and a chart see last week’s sentiment overview.

Mutual Fund Flows
US mutual fund investors reversed their aversion to domestic equities in January and actually poured in $2.2 billion - that is a paltry sum, especially after so many months of outflows. The activity for the first week of February completely reversed and nullified the whole inflow for the month of January. According to data from the ICI, domestic funds had outflows of $2.2 billion last week. Meanwhile, the bond frenzy continues unabated with $8.5 billion of new funds poured that way. I think we can attribute the surprising net inflow for January to be related to calendar or tax issues.

Hedge Fund Flows
According to Barclay Hedge and TrimTabs, hedge funds had net outflows of $3.8 billion in December 2009. This is a small amount, relatively speaking and similar to the aberration in retail mutual funds, it probably has to do with calendar issues and not anything particularly related to the market.

Magazine Cover Indicator
Just in case you were in a cave and missed the iPad announcement from Steve Jobs, the Economist put him on their cover to commemorate the event. Usually such a treatment would spell doom for a company but the Economist contains the usual dry British humor and pokes fun at the hype around the iPad.

This week’s cover is much more somber showing a lone man trying to cross a chasm through a derelict bridge. No real interpretation needed as the headlines of most newspapers and magazines are full of all the dangers in the world economy:

economist cover steve jobs ipad smalleconomist cover new dangers world economy small

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2 Responses to “Sentiment Overview: Week Of February 12th, 2010”  

  1. 1 DavidDT

    Hi Babak,
    was reading your blog few years ago, then lost track of it,
    hope everything is going well with you and family

    Don’t be a stranger - stop by my place - address changed, but fun and making money hand over fist is always there :)


  2. 2 Babak

    Thanks David, will do.

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