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Sentiment Overview: Week Of October 9th, 2009 at Trader’s Narrative

If it is Friday then this is the week’s sentiment round up:

Sentiment Surveys
If you’ve been monitoring the mutual fund flow data, you wouldn’t be surprised to see the AAII continue to show the average US retail investor as decidedly unimpressed and cool about the rising stock market. This week the pessimist camp grew slightly to 41% while the bulls shrank by 9% points to 35%.

The latest Investors Intelligence bulls edged off the half way mark to 48.9% while the bears increased slightly to 24.4%. This is nothing really noteworthy by itself, except to mark the continued 2:1 bull to bear ratio we’ve been seeing for the nth week. So far, the market has not succumbed to this flashing red light and it is anyone’s guess when it will finally decide to do so.

I mentioned the NAAIM Survey of Manager Sentiment as a lesser known sentiment measure at the start of the year. And it is time we updated it to see what it can tell us about the mood of active investment managers in the US:

NAAIM survey of Manager sentiment Oct 2009

At the end of September the NAAIM was +86.41 and has since dropped slightly to 68. It is difficult to see in the chart above, but the last time this sentiment measure showed as much bullishness was back in - Yikes! - October 17th 2007 (when it was +86.93). And it was surprisingly, even higher earlier in that year when it reached +90 in January, February and May 2007.

The RBC Consumer Attitudes and Spending by Household (CASH) survey jumped 11.8 points to 51.8 in October - this, after falling to an all time low of 1.6 in February 2009. The monthly RBC Index measures consumer attitudes on the current and future state of local economies, personal finance situations, as well as their savings and confidence to make large investments.

Finally, Consensus which measures futures traders shows them to be 72% bullish. Once again, raising the hairs on your back, that’s the highest level since October 2007.

Option Traders
The puts and calls are flying furiously but there is a definite skew as option traders favor the bullish side of the derivatives. Both the ISE and the CBOE measures of option activity show a continuing crowding on the long side.

The ISE sentiment index (equity only) closed at 221 this Friday, implying that more than twice as many calls were purchased to open a trade as puts. Meanwhile, the CBOE (equity only) put call ratio fell to 0.47 on Tuesday - among the lowest single day ratios for the whole year… so far.

Rydex Traders
But the itchy trigger fingered Rydex traders have suddenly gotten cold feet. Even as the market has recovered smartly from its latest set back, the Rydex Nova/Ursa ratio has fallen as these short term market timers eschew the long side:

rydex nova ursa ratio Oct 2009

Cross currents in sentiment are completely normal and something that any contrarian has to get used to. However, the current market’s sentiment conditions are especially confusing as it seems that one measure simply contradicts the one before it. When you don’t see an edge, don’t push your luck.

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4 Responses to “Sentiment Overview: Week Of October 9th, 2009”  

  1. 1 PEJ

    Thanks Babak.
    And what a great conclusion: “When you don’t see an edge, don’t push your luck.”

  2. 2 Babak

    Pej, sitting on your hands is sometimes the most profitable thing :)

  3. 3 jim jacob

    can you please give me a link that will post the latest data on the coppock especially when the october number comes out for the coppock??

    many thanks,

    jim jacob

  4. 4 hedonist

    Things are way too overvalued, there is no bad news, so stocks are fahrtìñg around here; if there’s good news the Dow will go up by abt 30; if thrs bad news it’ll go down by 100 ;
    this is the new trend in the new normal.

    A. Indices have already risen a lot.

    B. Data is going to continue to be positive, due to liquidity infusion and stimulus.

    C. But all this has been factored in.

    D. So if the news is good, how can markets not go up?

    Ans: The positive economic data will keep the markets fumbling around at these levels, pending a catalyst to justify a reversal.

    One such catalyst is the US dollar;
    true things are bad and the $ is expected to weaken; but there is one phenomenon which draws a line for the fall, just like a high dividend yield stock doesnt fall too much after it has reached a level where the yield is even higher than a T-Bill.
    This line for the $ is the Purchasing Power Parity Theory; an example is the Big Mac Index;
    for instance you cant have a situation where you pay $1000 for your monthly groceries in London, and just $ 150 for the same in in New York, with both countries having similar living standards.. similarly all goods and services cant get cheap beyond a point; thats when the $ has to stabilise and or reverse, which is one of the scenarios under which we will see a fall in Indices.

    Another such catalyst is failure of T-Bill auctions, which is not impossible.

    Or a significant terrorist attack in the west, that kills more than 200 people, not the minor daily explosions, which have become a part of life. As regards the dollar, the following gives some idea of where we are:

    We find ourselves at the crossroads with respect to the near-term direction of the dollar. From a technical perspective, my work argues that the dollar is extremely oversold and is “ripe” for a sharp, sustainable near- and possibly medium-term recovery rally.

    With the dollar so oversold, it is dry timber susceptible to the slightest spark — and another round of more forceful administration rhetoric or a few phone calls from the Federal Reserve trading desk to a few major players in the FX interbank market might trigger the necessary response.~
    Mike Paulenoff, MPTrader

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