A reader asked that I revisit my dismissal of Ticker Sense’s blogger sentiment poll so here’s a chart to see if we can once and for all decide if this has any value to analysis of stock market sentiment.
The Ticker Sense Blogger Sentiment poll started on July 10th 2006. But it was a while until it registered any extreme readings. My definition of “extreme” would be a bull/bear ratio of 0.60 and under or 1.71+ (I ignored neutral readings). To make it easier to visualize, I’ve only included these extremes - red and green dots respectively:
For an example of extreme optimism: recently, on October 13th, 2008 there were 75% bulls, zero bears and 25% neutral. While a good example of pessimism was on March 12th, 2007 with only 13.16% bulls, 42.11% bears and 44.74% neutral.
The first thing you notice is just how erratic this sentiment measure is. Although bloggers are asked: “What is your outlook on the U.S. stock market for the next 30 days?” they seem to be ready to change their minds from one extreme to the next at the drop of a hat.
Another characteristic is that while they put in a continuous string of bearish extremes in late 2006 and into mid 2007, they often jump from one extreme to the other and back.
I was going to put in a complete statistical analysis of the data points but I noticed that CXO Advisory Group had already done so:
Source: CXO Advisory Group
Their conclusion is what I said last year, Ticker Sense blogger sentiment poll provides no edge.
Right off the top of my head I can think of a few reasons for this indicator’s lack of value. The sample size is extremely small (20 bloggers) and it gets smaller since only a fraction participate each week.
Second, bloggers may be watching their own sentiment and adjusting accordingly. They are after all, a pretty savvy bunch and sentiment indicators and contrarian analysis is not unknown to them. This might explain why they swing from one extreme to the next at times.
Third, they may be reacting to what has happened rather than what may happen. According to the study done by CXO 11% of the sentiment can be explained by the market’s behavior. So there is a mix of reactiveness and proactiveness which may muddle things.
In the end though, it doesn’t really matter why, the data speaks for itself. Ticker Sense’s sentiment poll provides no edge whatsoever.
That’s why I’ll continue to ignore it, except to point out from time to time when it does go to extremes and garners attention… that it should be ignored.
Here is the raw data (so far):
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