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Sentiment Overview: Week Of September 21st 2007 at Trader’s Narrative





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Here’s a quick snapshot of this week’s sentiment landscape:

Investor’s Intelligence
Of the usual sentiment surveys this one is showing the most froth at almost 54% bullishness. The II bears have been quickly reduced to less than 30%. This is a very quick and very sharp about face.

Put-Call Ratio
Not the usual sentiment indicator but a worthy market barometer: the CBOE equity only put call ratio is at 0.53 and that’s just too high. The option market is too euphoric for the rally to continue much longer. As I already mentioned yesterday, it is time to sell something into this strength (if you have a short term time horizon). The time to scoop up shares was when the put call ratio was above one.

From Barron’s
Last weekend’s Barron’s had this tell regarding sentiment in the blocked fixed income market:

More than one quarter of the news-articles citations of “ABCP,” for asset-backed commercial paper, since 1993 have occurred in the past six weeks, according to the Factiva Database.

Usually when everyone and their cousin is talking about something, it has played itself out and the opportunity or trend is over.

Hulbert Stock Newsletter Sentiment
The Hulbert Stock Newsletter Sentiment Index, as of the close of trading on Tuesday September 18th, stood at just 17.4%. That’s a puny 3% point increase for a day which gave us the breathtaking 330+ point rally in the Dow Jones Industrial. Even more telling, the most recent HSNSI reading is much lower than in mid-July, when the stock market was much higher and close to 14,000. During that attempt, the HSNSI got as high as 50.9 %.

Commitment of Traders
I’ve described the ginormously long commercials position again and again. This week brings yet another increase in their long position as they continue to increase their bets of a continued market rally. I find this either the most bullish sign out there or the most elaborate mirage. The intensity and single-mindedness of this tell is alarming. If this is a mirage, what other explanations can there be? What am I missing?

“Bin Laden” Trades
So what happened to all those breathless conspiracy articles about a doomsday trade of gigantic proportions? a multi-million dollar derivative bet that the market was going to crash? As the market rallied, the silence is deafening. What a perfect illustration of contrarian sentiment and how by zagging when others zig, one stands to make money.

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8 Responses to “Sentiment Overview: Week Of September 21st 2007”  

  1. 1 Stephen

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    This expert seems to disagree

  2. 2 Shepard

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    I read that story also Stephen … The great aspect of that article is that the entire credit “trade” was broken down in easy to digest terms. Very informative, but very scary if Satyajit Das is correct. We shall see…

  3. 3 Babak

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    I wish I had the time to read Das’ book. It sounds like a rare expose on the financial engineering that goes on.

  4. 4 Mark Young

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    There has been a big shift in sentiment toward the bullish side recently. Tickersense has a ton of Bulls and Hulbert has his guys about 31% long which is a big shift.

    That said, the message board polls on traders-talk are persistently showing a lot of Bears. Short-term, that doesn’t matter. Longer term? Pretty important.

    Here’s the latest chart:

    http://www.traders-talk.com/mb2/index.php?act=Attach&type=post&id=5990

    Full Disclosure: I run traders-talk. If you contribute, feel free to link back to your blog. We’d be happy to have you.

    Mark Young

  5. 5 Babak

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    Mark, re the graph, what is it showing when it says bull/bear ratio?
    Thanks for the invite :-)

  6. 6 Mark Young

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    Babak,

    The chart shows a 5-day SMA of the ratio of Fully Long vs. Fully Short respondents to our daily poll. I’ve found that only confidence is worth tracking as an indicator, per se. Other aspects of the sentiment can have meaning and utility, but it’s more subtle.

    I’m pretty good at winnowing out all kinds of subtlety from sentiment measures. In fact, I’m the guy who runs the Wall St. Sentiment Survey for Decision Point, and I used to be able to make a pretty accurate call for the week based just upon that survey alone. Things have changed, however, and I need a pretty broad arsenal.

    Best,
    Mark Young

  7. 7 Babak

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    ah, ok - that explains it. Do you have a link to the poll or does it change every week? I’d also love to muck about in the historic data for this indicator.

  8. 8 Mark Young

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    Babak, the poll changes every DAY! That’s what’s so valuable about it. We also run a weekly, but the daily is great. It’s pinned at the top of this board:

    http://www.traders-talk.com/mb2/index.php?showforum=2

    and there’s an archive of every poll since we started right there, just above.

    I have to tell you, I find it very valuable, personally.

    Mark

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