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Sentiment Overview: Week Of November 16th 2007 at Trader’s Narrative

I know this is a bit late but lets cover last week’s sentiment landscape:

Hulbert Stock Newsletter Sentiment
According to Mark Hulbert, there is a stark contrast in the land of newsletters. The newsletters with the best track record in timing the stock market are bullish with an average 83% equity exposure. Contrast that with newsletters with the worst track record which are bearish with an average of only 9% exposure.

LowRisk 30-Day Outlook
Last week this survey had 64% bearish and only 18% bullish. That was a head spinning change of mind from the week previous to that when there were 34% bears and 50% bulls. As I’ve said before, LowRisk is a very volatile sentiment survey but nevertheless, this level of bearishness should be noted. The last time we saw something similar was back in August 2007.

Investor’s Intelligence
In contrast, newsletter sentiment as judged by II shows 51.1% bulls and 26.7% bears. Although that is down a bit from the 60+% of bulls the survey was showing just a while ago, it is still quite bearish from a contrarian point of view.

And to thoroughly confuse you, the retail investors are actually rather fearful: 50% bearish and only 33% bullish. This level of sentiment has corresponded historically with important intermediate stock market bottoms.

ISE Sentiment Index
Last week (November 16th) the ISEE sentiment index fell to 68 - that is, 68 long call options were initiated for every 100 put options. This is not the extreme historical lows but it is low enough to be a strong signal. Perhaps of an upcoming intermediate bottom being carved out from abundant fear and loathing.

Magazine Cover
economist cover US economy.pngAccording to the Economist, the US economy is about to be gobbled up by a recession? sub-prime mortgage and/or credit crisis? the disappearing dollar? I have no idea what the shark is supposed to represent exactly.

But it doesn’t matter since the Fed seems to agree. At least thats what it seems from the newly released minutes of the Oct. 30-31 Fed meeting. The Fed Funds futures market has now built in another 25 basis point cut when the Fed meets next in December.

Hmmm… that sounds remarkably familiar. Where did I read about the Fed cutting rates in the summer before they started slashing? And then again about one last rate cut before the year’s end?

It just rings a bell :-)

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3 Responses to “Sentiment Overview: Week Of November 16th 2007”  

  1. 1 Colin

    Obviously the swimmer represents any generic Investment Bank CEO, and the shark is the one who calls the east river home.

  2. 2 Babak

    Colin, the swimmer better start paddling harder ;)

  3. 3 Keith Shepard

    “I have no idea what the shark is supposed to represent exactly”

    The shark represents impending danger & doom that’s unseen to the swimmer (or in the case, the US economy). I’m sure you know this (apologies if you do), but that magazine cover is a take on the 1975 Peter Benchley book (and later movie) “Jaws”. (book)



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