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Sentiment Overview: Week Of January 16th, 2009 at Trader’s Narrative





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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:

HSNSI 2002 bear market bottom sentiment

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!

HSNSI sentiment Jan 2009

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.

Sentiment Surveys
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%.

ISEE Sentiment
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.

Market Breadth
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.

Volatility
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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4 Responses to “Sentiment Overview: Week Of January 16th, 2009”  

  1. 1 Don

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    Great analysis. It’s been my contention that the only way to make money in this market is to short the bounces and forget the bottom calling. When the bounces become less anemic and when the 200-day average starts to turn back up, then I’ll start to examine long side trades again.

    I linked this on my site as I feel our readers will find it very useful. Hope you don’t mind.

  2. 2 Russ Abbott

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    Where do you get the statistics about the number of stocks over their 10 day average?

    Thanks.

    – Russ

  3. 3 Babak

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    Don, thanks, and link away :)

    Russ, there are a few places. check out indexindicators.com

  1. 1 You know what your problem is? | Securities Research Services


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