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Here is this week’s sentiment wrap-up:
Hulbert Newsletter Sentiment
One of the most important aspects of sentiment analysis is that it presents us with a snapshot into the mindset of the general investor at a pivotal moment - like a retest of a bottom. As the S&P 500 heads down towards its November lows once again, the sentiment picture doesn’t bode well for the bulls.
To see why, let’s go back to the last bear market low in 2002-2003. At that time the Hulbert Stock Newsletter Sentiment Index (HSNSI) hit +10% at the low in October 2002. This meant that the average market timing newsletter was suggesting a market exposure long of 10% of a client’s portfolio.
When the S&P 500 (SPX) melted back towards the 800 range the vast majority of people had given up on the market and instead of going long were suggesting shorting the market. That was a demonstrable show of capitulation on the part of die hard bulls and it was one of the reasons that we lifted off to a new bull market:
Now compare that to what we are seeing now. Since the low of 750 for the S&P 500 Index (SPX) the average market timing newsletter as measured by the HSNSI is actually more bullish!
Of course, this not only flashes a bright red caution light for the bulls, it dovetails nicely with all the other sentiment data we’ve been looking at recently.
According to the ChartCraft Investor’s Intelligence survey, the bulls increased slightly to 43% while the bears remained the same.
In contrast, the AAII sentiment survey showed a large drop in bullishness - from 48.70% to 27.63%. The bearish reading increased but not as much - from 35.06% to 47.37%.
There was no significant change to report with the ISE sentiment index.
General Sentiment Measures
I’ve outlined a few lesser known measures of general sentiment which are hitting very low or all time lows. If you missed them, they are the Conference Board Consumer Confidence and the State Street Investor Confidence Index.
The percentage of S&P 500 stocks above their 10-day moving average is once again below 10%. This is usually a rare event but thanks to the tumultuous market of 2008 we have gotten used to seeing this more and more. Within a bull market this is usually a very good indicator of a significant bottom but in this market I wonder if it has the same significance.
The CBOE volatility index has regained the 50 level once again (peaking at 55) but there it has met the declining 50 day moving average and the previous technical support line. My hunch is that this is a reaction to the rapid decline and volatility will continue to fall.
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