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Sentiment Overview: Week Of January 30th, 2009 at Trader’s Narrative

Here is the sentiment overview for the last week of the month (in terms of returns, the worst January ever!):

The American Association of Individual Investors’ weekly sentiment survey had 47% of respondents bearish and only 25% bullish. That may seem like good odds for a rally… except that we’ve been hereabouts before (in late 2008) and yet the market weakness continued.

Investor’s Intelligence
This week’s II sentiment survey shows the bears at 38% and the bulls at 34.8%. This is a continued amelioration of the exuberance that we’ve seen for the past several weeks, but it still leaves the two camps, more or less, equal to one another.

Fund Flows
Yesterday we talked about the lack of IPOs which are in a sense, supply of “paper” to the market. On the other side stands the fund flows which measure the demand for equities through the purchase or sale of mutual funds.

Not surprisingly, mutual funds have undergone a scorched earth scenario where for more than a year, we’ve hardly seen net inflows:

mutual fund flows AMG compared to SP500 index 2008 to 2009
Source: Data by AMG Data and chart by

Although this data has a contrarian tinge to it, there is nothing bullish about seeing a continuous erosion of mutual fund flows. A sudden and sharp decline is far different than what we are seeing now. Eventually, for the market to be able to find its legs again and push forward, we will need to see people willing to pour billions and billions of dollars into new mutual fund purchases.

Options Sentiment
Neither the CBOE put call ratio or the ISEE call put sentiment ratio are significantly different from last week’s sentiment overview.

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2 Responses to “Sentiment Overview: Week Of January 30th, 2009”  

  1. 1 Wes

    Through this entire bear market every sentiment indicator you have presented has given false signals. The Rydex Ratio, an indicator I follow has given a buy signal only twice, that in October (at the thus far internal low) and an even stronger buy at the November (external) low.

    Perhaps you could include this sentiment indicator in the future.

    One reason I think it seems to work better than those you follow, it is based on what the public is doing (with their money) rather that what they are thinking, or say they are thinking.

  2. 2 Babak

    Wes, thanks for your comment. I do look at the Rydex ratios but since the rise of ETFs and leveraged ETFs, their usage has fallen off dramatically. I agree with your assessment that metrics which point to where the money is going are much better than simply surveys of opinion. And I’ve mentioned similar sentiment data, for example options sentiment for the ISE and CBOE market. In the end though, sentiment and contrarian analysis is a blend of art and science and only one aspect of the market.

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