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Sentiment Overview: Week Of November 7th, 2008 at Trader’s Narrative

Here is a recap of the important sentiment news for the past week:

Sentiment Surveys
Retail investors and traders continued their complacent mood. According to Wednesday’s AAII sentiment survey, the bulls increased to 44.83% and the bears continued to fall, reaching a mere 33.33%.

Tuesday’s results from ChartCraft’s Investor’s Intelligence weekly survey resulted in an increase in bullishness to 30.3% and decrease in bearishness 48.3%

I continue to be a little disappointed by the rapid mood change shown by these traditional sentiment indicators.

Corporate Insiders Buying
Various sources of data for insider activity is showing a marked uptick in buying. Corporate insiders are considered to be “smart money” so this is a good sign. The fact that they are now buying cheap stocks means that they believe that stocks have fallen enough to be a compelling value. This isn’t so much a sentiment measure as a real measure of behavior. So in a sense it has more weight because what someone says on a survey is one thing, but what they do with their cold hard cash is another.

Volatility hasn’t imploded, yet. But we are off the all time record highs of both the VIX and VXN. As well, we seem to have put in a small lower high with the VIX index ending at 55.14 - now it needs to put in a lower low.

The stock market has entered into positive seasonality. Although this doesn’t guarantee in any sense that the market will go up, it does mean that we have the wind at our backs. This may mean nothing when you consider that we are having one of the blackest black swan years.

rydex nova ursa ratio Nov 2008.pngRydex Nova Ursa Ratio
It has been a while since I mentioned this sentiment indicator. Mostly because it wasn’t registering any extreme readings. Except for the most recent data point from late October.

The Rydex mutual fund family is in danger of becoming a vestigial financial vehicle. For those unfamiliar with this indicator it used to be the fast moneys preferred choice since it was the only mutual fund priced more than once a day and offered a way to profit from both the rise and fall in the market. Of course, with today’s plethora of ETF and levered ETFs Rydex has been left in the dust.

But the most recent ratio shows that the fast money switched heavily into the bearish market timing fund leaving the bullish one in droves.

Magazine Covers
Here are two interesting recent magazine covers. These are worthy of note and perhaps good contrarian indicators because they are general interest publications which usually do not focus on the economy or the financial markets. So the fact that they have devoted a cover and made it so excruciatingly negative in its symbolism is telling.

esquire cover after the crashnew yorker cover oct 20 2008 market crash

Source: Esquire Magazine cover article and New Yorker magazine

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5 Responses to “Sentiment Overview: Week Of November 7th, 2008”  

  1. 1 Mark S.

    It would be interesting to a take a bit more of an in-depth look at that “magazine cover indicator”, and see what what was on the covers of the popular magazines of the day in, say, 1930-31, or 1973 or 2001… In other words, were there a lot of negative covers with still a massive amount of downside to go?

  2. 2 Kevin

    Excellent point Mark. Just trading off the magazine indicator can be very dangerous but if you COMBINE this indicator with other tools, I think it can be quite helpful. Other tools might be seasonality as was mentioned in the above post.

  3. 3 Investorsconundrum

    It’s a surprise, a nervous bear market but a neutral investors sentiment. It’s not a good sign.

  4. 4 CST

    China stimulus plan can prop up US market? How does it work?

  5. 5 Babak

    Mark, magazine covers are a good weather vane of the public mood. You can go and check to see the covers for time/newsweek, were they published back in the ’20s?

    Kevin, I don’t think anyone just trades off them but they are a neat indicator.

    IC, remember, we did see severe bearishness - it just didn’t last for very long.

    CST, not sure what you mean but I suppose if the Chinese economy can sustain its growth for a little longer, it won’t be as much a drag on the world economy as it would otherwise be.

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