okay, lets get started… here is this past week’s sentiment overview:
Retail Investors Soil Pants
That’s not the sort of headline you’ll find in any newspaper but it is true nonetheless. The most eye popping sentiment data this week comes from AAII where only 20% of the survey respondents are bullish and 59% are bearish.
The last time we had so small a group of optimists was January 1993 and May 1993. But even then, the number of undecideds was larger. Right now we have as severely a lopsided sentiment picture as ever. The “dumb money” is crowding to one side. The question is, where do you want to be? with them? or on the opposite side?
Before you answer, check out the chart of the S&P 500 Index (SPX) showing what happens when we have more tan 50% bearishness in the AAII survey:
I may have been a bit early when I wrote “Time to Buy” but I did add that a market rally was around the corner. I think we’re rounding that corner now.
ISEE Sentiment Index
At the start of the year I got concerned that the retail option traders were too excited, buying up calls and shunning puts. We now know that the market dipped right after. Yesterday the ISEE Index pulled back to 72 - meaning only 72 calls are being bought for every 100 puts.
That’s not as low as I’d like to see it but the market has turned around at these ratios before. Check out my intro post on the ISEE sentiment index.
Of course, it didn’t hurt that there were pervasive rumours of a surprise Fed rate cut this week. Who knows who starts these things? eh, Doug Kass? I wonder if you know?
And wouldn’t you know it? In a Washington speech, Bernanke practically came out and said that rates would be cut more aggressively - “Fed speak” for half and 75 basis point cuts. Which is what I’ve been droning on about for too long.
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