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Sentiment Overview: Week Of September 11th, 2009 at Trader’s Narrative

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Here is this week’s summary of stock market sentiment happenings:

Sentiment Surveys
Even as the stock market bounced higher, the US retail investors, as measured by the AAII weekly sentiment survey, grew slightly more cautious. This week’s survey showed an increase of bears by 6% points to 44% and a small decrease in bulls to 37%. This is an intriguing turn of events, especially considering that just a short while ago, more than half of this same group of investors was extremely bullish. But just a small pothole on the way to higher stock prices has spooked them to not only grow less bullish very quickly but to also remain so. But there is anecdotal evidence that they are tip-toeing back into the stock market.

In contrast, newsletter editors as measured by ChartCraft’s Investors Intelligence sentiment index continues to be wildly bullish with optimists outnumbering pessimists 2 to 1. This week the bulls diminished slightly to 23.6% and the bulls also shrank a little bit to 48.2%.

And finally, the Hulbert Stock Newsletter Sentiment index shows that the small subset of market timing newsletter editors tracked by the Hulbert Digest have not materially changed their posture. But the Hulbert Nasdaq Newsletter Sentiment index has registered a serious decrease in optimism. This sentiment measure was 57.1% on August 21st, 2009 when the Nasdaq was at 2020. Meanwhile, today the Nasdaq closed almost 61 points higher, but the HNNSI is just 28.6% - almost exactly halved.

We’ve been witness to a schizophrenic sentiment outlook recently. This choppy, one day bullish, the next day bearish, and then back again type of action is usually characteristic of corrections. Such lack of conviction, with everyone ready to switch camps at the drop of a hat makes me think that one side will eventually be caught on the ‘wrong’ side of the market. And their pain will fuel the next leg, either up or down. Honestly, right now I’m not convinced myself which is more likely. I’ll prefer to be in the audience until the fog lifts.

September’s Seasonality
True to form, with everyone’s attention directed towards the dire September seasonality, the market has staged a rocket-ride higher!

Consumer Confidence
The Reuters/Michigan University consumer confidence data released today rose above 70 again. The last time it was in the vicinity of this area was a few months ago in June.

consumer confidence gallup poll Sept 2009Both the current conditions index and the expectations index rose from August. Either the average US consumer is simply believing the stock market’s message or the US economy is actually getting better.

The consumer confidence survey from Gallup also shows a similar increase (see chart on the left). In fact, the current level is the highest consumer confidence level since they started to track this question at the start of 2008.

Option Traders
Thursday’s one day ISE sentiment (equity only) index was 210 - meaning that there were 210 equity calls purchased by retail clients for every 100 puts. That’s the highest level since July 28th, 2009 when the S&P 500 was at 980 - some 70 points lower. But that’s just a one day super-bullish event so it has little consequence, especially as the ISE index fell hard on Friday (to 137). The short term (10 day) moving average is much more meaningful and it is at 171 which leaves it mired in neutral historical territory.

The CBOE put call ratio (equity only) continues to register very strong bullish sentiment:
cboe equity only put call ratio Sept 2009

The short term moving average is still at a very low level and it is also well under the multi-year channel line. It is certainly possible that this ratio can continue to be mired in this area for some time. The CBOE put call ratio is eve more bullish that it was at the beginning of 2007.

Lighting the Afterburners
This week we saw an incredibly powerful thrust in the markets with pretty much every single issue out there moving up. While this following data point is not technically a sentiment measure, it is definitely a consequence of the return of risk taking on Wall Street: this week saw more than 3 out of every 4 NYSE issue trade higher. This is, needless to say, a rare moment in market history. On the flip side, you’ll recall that earlier in the week Wayne pointed out the incidence of zero new lows in the NYSE.

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3 Responses to “Sentiment Overview: Week Of September 11th, 2009”  

  1. 1 Michael V

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    I was wondering in regards specifically to the sentiment. Are there any charts or graphs on sentiment where we can see a specific trend? It would be helpful to have a chart of the sentiment vs. the S&P 500 for the last 10 years at least. How was sentiment during 2003?

  2. 2 David

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76 shows AAII and Marketvane data shows Investors Intelligence data and several Put/Call Ratios also has charts of Put/Call Ratios and lots of other data
    on you find a short graph of the ISE Call/Put Ratio and the complete data series in exel

  3. 3 Market Sniper

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    Hey Mike. I have found Sentimentrader to be an excellent souce. Deals with some very interesting sentiment indicators few, if any, really follow. Superb site at only $70 a quarter.

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