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Sentiment Overview: Week Of January 23rd, 2009 at Trader’s Narrative





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Here’s this week’s sentiment overview:

Sentiment Surveys
Let’s start with the most common sentiment measures:

The AAII came in this week at 27% bullish and 46% bearish - little changed from last week (one percentage point variation, if you are that curious).

ChartCrafts’ Investor’s Intelligence results this week shows a bit more movement with the bulls and bears returning to approximate parity: bulls at 38.7% and bears at 36.7%

ISEE Sentiment
Amazingly enough, during this catastrophic bear market, the retail option trader, as measured by the ISEE Sentiment index has been completely unfazed. The index is a ratio of call to put option purchases (to open a position) and therefore, a low number denotes fear. Looking at the equities only chart of the ISEE from 2008 to now there is remarkably little concern as the index has only fallen below parity a handful of times:

isee sentiment index 2008 to Jan 2009

CBOE Put Call Ratio
The traditional option sentiment index is mirroring what the ISE sentiment index is telling us. As you can see from the charts below, the last time puts were more popular than calls, we had a significant rally, which put in the low (for now). However, as the market continued to recover into the new year, it was puzzling to see fear also increase. And now as the market has weakened and approached the November 2008 levels, option traders are not concerned in the least:

cboe put call ratio equity only Jan09
SP500 chart compared to put call ratio Jan09

Again, this is similar to last week’s sentiment overview where we saw evidence of too much optimism. All in all this tends to paint a fairly clear picture of the prevalent sentiment out there but not one that many longs will be happy to see.

UPDATE:
Economist Magazine Cover
Don’t know how I missed this since I was actually reading the magazine! Here is this week’s cover:

economist cover Jan 22 2009

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4 Responses to “Sentiment Overview: Week Of January 23rd, 2009”  

  1. 1 Peter

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    Maybe investors (option traders) become more intelligent now…

    When ISEE Sentiment index was at record high (206) on 12/29/2008, DJI was just about to break upwards…and only 8 trading sessions later, market reversed to the down side, when ISEE reached a low (89).

    Today, the ISEE is also very high (172), which suggests people are expecting the market will reverse..Let’s see what will happen next.

    People may think enough is enough. Just like today crude oil surged higher despite bearish data released yesterday, thus squeezing short sellers.

    I think it is a good sign…

    It seems ” Percentage of DJIA Stocks Above 20-Day Moving Average” is a better indicator for an interim market bottom or top:

    http://www.indexindicators.com/charts/djia-vs-djia-stocks-above-20d-sma-params-6m-x-x/

    Thanks.

    Peter

  2. 2 mark

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    good point peter about the isee,

    thanks!

  3. 3 Babak

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    Peter, I’m not sure what you’re saying. If option traders were “smart” why would they on average load up on calls right at the top? as well, just to be clear, the chart I include is for the ISEE equities only index not all securities (including index options). As well, the % of Dow stocks above their 20 day moving average was at zero in October and yet the index declined further.

  4. 4 Zlatko

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    I’ve been looking for something like $TICK, but for end-of-day use. I never thought about using the put call ratio! Thanks!

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