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Without further ado, here is the lay of the sentiment-land for this past week:
According to this measure, stock market newsletters are on the whole equally split: 35.5% bullish and 36.3% bearish. This is the 4th week that we’re seeing approximately parity between the two camps. And since we are looking for extremes to point out inflection points, this is not helpful.
To learn about the origins of this sentiment survey, see A Brief History of Contrarian Analysis
The American Association of Individual Investors weekly survey came in with only 25% bulls and 44% bears. This is exactly the same percentage of optimists as last week’s AAII survey results.
More importantly, the allocation of money to stocks continues to be below 50%. If you recall, this metric hit an extreme low at the beginning of the year, falling to 42%. The last time we saw AAII respondents allocate so little equity in their portfolio was in late 2002 and beyond that right after the 1987 crash.
Rydex Nova/Ursa Ratio
A reader commented on last week’s sentiment overview that I should feature the Rydex Nova/Ursa ratio because it has given few and accurate signals. I’ve mentioned this sentiment metric before but as Wes said, the signals have been infrequent. The last time it appeared here was for the sentiment overview of November 7th, 2008.
As you can see on this chart, that was an extreme level and since, we haven’t seen anything remotely interesting from the Rydex Nova/Ursa Ratio:
To put that spike in sentiment in perspective, it was much lower than the pessimism that accompanied both the darkest days of the last bear market and the immediate after math of the tragic events of September 11th, 2001. So no doubt that what we saw was significant. But bear in mind that around the same time last year, almost every single needle was hugging the red line for dear life.
CBOE Put Call Ratio
The ‘traditional’ put call ratio measure fell to 0.71 on Friday and the equity only ratio reached 0.60 - that’s not so low to worry the bulls but if we continue to see a few more days like that next week, things would change.
Once again, on Wednesday February 4th, the ISEE sentiment index fell below the magical 100 number (to reach 97). As was mentioned two weeks ago, this is something that has happened only a few times since January 1st 2008 - surprising, when you consider just how volatile and intense this bear market has been. With this weeks incidence, we now have only 9 occurrences where the call put ratio on the ISE has been below parity. As with the other times, the ratio quickly recovered above 100 to finish off the week at 132.
Hulbert Stock Market Newsletter Sentiment
Finally, returning once again to the newsletter editors, the subset of stock market timing newsletters followed by the Hulbert Digest shows that there are surprisingly few bears out there. The Hulbert Stock Newsletter Sentiment Index (HSNSI) finished the week at -7.4%; meaning that the average market timing editor out there is suggesting a small short position to their clients.
That might seem bearish but once you consider that the lowest it descended was -42.9% in July 2008 (not October nor November 2008!). And that just two weeks ago the HSNSI was -20% with the S&P 500 barely 60 points lower at that time, it is clear that this sentiment measure is not showing any type of capitulation or pessimism.
Energy shorts beware!
Business Week’s cover this week is a picture of Exxon as a ship’s hull with a leak. While most magazine covers are fodder for contrarian analysis, Business Week is a repeat offender so this is especially significant. Who knows, maybe it says more about Exxon’s stock price than the price of crude. But the two are more or less intertwined so I suspect if this has any contrarian value, it also applies to the commodity.
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