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Sentiment Overview: Week of March 28th, 2008 at Trader’s Narrative

This week sentiment recovered from the abyss into which it had fallen. This isn’t surprising considering the strong lift-off the market had last week. But even so, it doesn’t yet give us any reason to doubt the veracity nor the potential of the rally to continue.

Hulbert Newsletter Sentiment Index
According to Mark Hulbert, the Hulbert Stock Newsletter Sentiment Index (HSNSI) was -22.5% on Monday, March 24th, 2008.

On March 10th, 2008 when we had the lowest close in recent history, the HSNSI was a little bit lower at -25.9%. Which means that although the market has recovered from such lows, the average market timing newsletter writer is still very much bearish and recommending to their subscribers that they in fact short the market in their portfolios!

This is even more significant when we compare the reaction this rally has provoked to the previous rally in mid January. Right after the market recovered from those intra-day lows and went higher, newsletters quickly jumped on the bandwagon and the HSNSI increased right along with the rally more than 22% points.

This is exactly what I was referring to when I answered Jim’s question about trend and why I’m not bearish in the current market condition.

Sentiment Surveys
The AAII retail investor’s sentiment survey continued to recover with an increase in optimism: 42% were bullish and 34% bearish. This puts them square in neutral territory.

The II (ChartCraft’s newsletter sentiment measure) similarly recovered with a small decrease in the number of bears (41%) and a small increase in the bulls (36.7%). But unlike the AAII, the newsletter editors are still very much at extreme levels of bearishness which have historically coincided with market bottoms.

Although sentiment has shifted from the lopsided scenario we had, I don’t think this means that the rally it birthed is in danger. For the market to go up we need people to start buying again and for that, they need to not be so afraid. That, however, is different than a quick shift from one extreme side of sentiment to the other.

ISE Sentiment
This week we’ve seen a consolidation after last week’s rapid recovery. The ISE Sentiment Index, however, is showing that this has lead the retail option traders to quickly lose any excitement for the rally:

ise sentiment march 2008

ROBO Put Call Ratio
This proprietary measure created by Jason Goepfert of keeps track of what the small retail option traders are doing.

The most recent data is showing that the retail investor is very worried. The ROBO put call ratio is 0.91 - that’s from 0.68 in mid February 2008.

To find similarly pessimistic times when the retail investor was buying puts so frantically, we’d have to go back to early 2003, just as the bear market was coming to a close.

Because of the delay in getting OCC data, this reflects what was happening in the option market last week. But it is nonetheless useful on an intermediate to long term time horizon.

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3 Responses to “Sentiment Overview: Week of March 28th, 2008”  

  1. 1 wes

    As usual, great stuff.

    This decline seems to look most like 1990. Even the “will the banks survive” theme is similar.

    I know it’s a lot to ask, but what did these (or corresponding previous indicators) look like at the bottom then ?

  2. 2 MrEd

    The S&P was down for the week. What launch?

  1. 1 Sentiment Overview: Week Of April 4th, 2008

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