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Sentiment Overview: Week Of May 22nd, 2009 at Trader’s Narrative

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Here’s this week’s walk through the sentimental landscape:

The retail investors, as measured by the weekly AAII survey are paring their new found bullishness. The bulls are down to 34% while the bears increased to 45% (each going in the opposite direction by 10% points from last week). Although this is an about face, it only takes us to sentiment territories we have occupied since late March.

Investors Intelligence
The newsletter editors on the other hand as sticking to their guns. According to ChartCraft, this week the II bulls are at 40.7% - almost unchanged from last week - while the bears were 29.1% - down slightly from last week.

ISEE Sentiment
Although we closed the week down, and Friday flat, the retail options traders, as measured by the ISE sentiment, were quiet ebullient. They spent the entire week see-sawing up and down then on Friday they bought twice as many calls as puts, putting the ISE sentiment index at an even 200 (equity only).

To get some perspective on this, see last week’s sentiment overview which showed a chart of the ISE index and a short term moving average. All in all, such optimism has easily tripped up the market in the past.

CBOE Put Call Ratio
We see the same nonchalant display from the option traders at the CBOE. The put call ratio (equity only) continues to drip lower, reaching for the uptrending channel that it has occupied for some time:

cboe put call ratio average historical May 2009
S&P 500 index comparison to put call ratio May 2009

The 21 day simple moving average has been a good guide for timing the market with this indicator. Whenever it has fallen to similar depths, the market has had either a tough time or fallen precipitously. But, as you’ll notice, the CBOE put call ratio has been behaving rather bizarrely throughout this bear market.

The S&P 500 has managed to sustain an uptrend even as the put call ratio has fallen to levels which previously would have halted it in its tracks. Arguably, the market should have stopped going up sometime in April. Of course I mean that facetiously because I’m not about to tell the market what it should or should not do.

The Grey Beards
I keep track of a few ‘grey beards’ - investors who have lived through several bear and bull markets and have the scars to prove it. The 71 year old Steve Leuthold of Leuthold Weeden is one of them. He called the March bottom almost to the day! Click to watch the Bloomberg video here (from March 4th 2009).

Keep in mind that he runs a short fund aptly named Grizzley Short Fund. But he’s agnostic enough (and brilliant enought) to see opportunity when it presents itself. Since having changed his position, he now is considering adding to his longs - for details see this article (and video) from Bloomberg that I already showed you at

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