Let’s recap the important developments in market sentiment for the week:
The weekly AAII survey which measures retail investor sentiment in the US shows the number of those expecting the stock market to continue rising has increased to the extreme level we saw at New Year’s. The bulls jumped to 47.44% (from 41% last week) while the bears remained at almost the same level, at 26.92%.
The Investors Intelligence survey which in contrast measures the newsletter editors’ sentiment shows 53.4% to be bullish, only 15.9% bearish and the rest (30.7%) anticipating a correction. Similar to the AAII data, once again, the II survey is at the extremes we saw just a few weeks ago at the start of the new year. As you’ll recall from that week’s sentiment overview, this is a multi-decade extreme and highly notable for its rarity. To see a chart for both weekly surveys, see the previous link.
Hulbert Newsletter Sentiment
According to the Hulbert Stock Newsletter Sentiment Index (HSNSI) newsletter editors are considerably less bullish than just a week ago. While the S&P 500 has risen in the past week, the HSNSI has fallen from 65.2% to 48%. This implies that the average short term market timing newsletter is suggesting to their clients to have a long exposure of less than half their portfolio. Mark Hulbert notes that the divergence between the HSNSI and the Investors Intelligence metric could be due to the latter being a weekly measure while the former is a daily index. Therefore, he anticipates a drop in bulls next week in the II survey.
ABC Consumer Comfort Index
The ABC/Washington Post Consumer Comfort Index fell by one of its largest weekly declines in the last 25 years. The CCI fell 6 points to -47, lead by an 4 point decline in the “Buying Climate” sub-index:
After more than 1250 weeks of polling, the CCI has only fallen this much (or more) 13 weeks. The CCI has fallen by 6 points eight times, 7 points four times and 9 points once in its entire history. According to the Buying Climate sub-index, only 24% believe that “it’s an excellent or good time to buy things”. The highest was 57% registered in January 2000 and the lowest, 18% on October 2008.
While the public continues to pull money out of their equity mutual funds and equity ETFs, hedge funds are seeing fresh money pour in from institutional investors and accredited private individuals. According to TrimTabs, $18.7 billion was invested in hedge funds in November 2009 compared to just $8.2 billion in October 2009. While hedge funds did see significant outflows during the bear market, firms like TrimTabs, BarclayHedge and HedgeFund.net which track money flows for the hedge fund industry are reporting that, generally, we are back to pre-crisis levels of funding. Note this as yet another instance of the growing chasm between the monied elite and the penniless rabble.
The traditional measure of option sentiment, the CBOE put call ratio is continuing to fall as traders ignore the need to buy downside insurance. To filter out index and ETF effects, I only look at the equity only data. The 10 day moving average of the CBOE equity only put call ratio has fallen to 0.537 which is one of the lowest readings we’ve seen in years. It was momentarily lower in mid-October 2009 as the S&P 500 made a short term top.
Although the more recent example is an anomaly (for now), as you can see from the chart below, the S&P 500 index has difficulty running higher when there is so much optimism in the option market:
Turning to the ISE Sentiment index which tracks retail option trading activity, we see it has continued to go almost straight up. The 10 day simple moving average of the (equity only) ISE index is now at 206.10 - which means that on average in the past 10 trading days, retail traders have bought to open, more than double the number of call options relative to put options. Here’s a chart of the ISE data since its inception:
As you can see from the chart, it is rare to see the ISE index trade above 200 for any length of time. The last time the ISE call put ratio was this high was in early November 2007 and before that mid October 2007. The only time the ISE Sentiment index was higher was in mid-July 2007. All these past instances of complacency coincide with the S&P 500 index cresting and falling into a multi-year bear market.
Bloomberg Professional Global Confidence
The January 2010 Bloomberg Professional Global Confidence index rose to 66.6 from 58.9 in December. This is the highest reading since the survey was started 2 years ago. Since a number above 50% denotes bullishness in the survey we’re seeing a significant rebound in confidence on the part of institutional and professional money managers. The Bloomberg survey has been above 50% for 5 consecutive months now.
The largest increase in confidence was in Japan which increased to 41 percentage points to 64.71%. And Brazil was the most popular country with a climb of 17 percentage points to 78.83%. In contrast to the growing optimist towards equities, the Bloomberg survey shows investors are concerned about the US Treasuries and stepping away from bonds. Expectations for a decline in bond prices jumped to 76.65% - the most since the start of the survey.
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