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Ticker Sense Blogger Sentiment Provides No Edge at Trader’s Narrative





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Sentiment surveys are a great way to measure what the masses are feeling. Are they scared? panicky? greedy? apathetic? There quite a few sentiment measures out there. They each try to measure some sort of sentiment: from investment newsletter writers to Mom and Pop retail investors, to institutional strategists and now, thanks to Birinyi Associates we even have a blogger sentiment survey.

To be useful, a survey has to provide an edge. That is to say, it has to be able to give some reasonable signal related to the market. Usually sentiment surveys are interpreted from a contrarian point of view. This inverts the results so that when the survey shows an extreme bearishness, it is interpreted to mean that it is a good time to buy.

But there is no reason why a sentiment measure has to be contrarian. It can also be accurate. That is bullish when it should be bullish and bearish when the market it topping. The worst sin a sentiment survey can commit is to have no edge.

And I’m afraid the Ticker Sense blogger sentiment poll is guilty of this. We have data for almost a full year now and no matter how we slice and dice it, it provides no edge whatsoever.

It’s most obvious characteristic is that while the market has been relentlessly going up, week after week, the poll shows a consistent preponderance of bears over bulls.

But before you think that this means that we can use it as a contrarian measure, consider the other side of the coin. The rare time that the poll has shown more bulls than bears - only 5 times! or around 10% of the time - it has not been a reliable indicator of a topping market.

Out of the five times the poll has seen more bulls, three of those have in fact been good buying opportunities (see graph below). I suspect they were times when the bloggers grudgingly gave in to a powerful bull market - albeit for a very very brief period of time.

Below you can see a chart showing this (green dots are instances of more bulls than bears). I didn’t put a red X on the chart everytime a bearish consensus proved to be false because that would make the chart as red as a butcher shop:

ticker sense blogger sentiment poll updated June 2007.png

The conclusion I draw is that the poll is simply meaningless. It provides no significant piece of sentiment information we can use. At times it is bullish and at most other times bearish. But there is no connection whatsoever with the market.

This reminds of last year’s experiment by Barron’s with a proprietary sentiment concoction from the hallowed halls of Citibank. For week after week this sentiment measure treaded water at a level they had marked ‘panic’. The market went up, the market went down. And still Citi’s sentiment measure mumbled ‘panic’. After a few months of fielding complaints from readers Barron’s withdrew the metric.

That’s what I suspect will happen with Ticker Sense’s sentiment poll also. The market is ruthless. If something has no value, it is discarded.

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3 Responses to “Ticker Sense Blogger Sentiment Provides No Edge”  

  1. 1 David Merkel

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    Hi. I write for RealMoney, and also my own blog, Aleph Blog. I usually ignore most surveys of what people think about the market; there is often no money on the line behind those opinions. What I want to know, and try to figure out, is what people are relying on. If people are relying on a certain investment result to occur, and it doesn’t happen, or much worse, the trade goes the wrong way, then regret kicks in, and we get panicky selling or short covering.

    I guess another way to say it is I try to figure out whether an asset is predominantly held by strong or weak holders (shorts are almost always weak); that helps me figure out what might happen in the short run as to what sort of price reaction we could get from a negative or positive event.

    I throw this out for what it is worth. I had a series of articles on this topic at RealMoney.

    Take care.

  2. 2 Babak

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    David,
    good point. Sentiment is only a guide. Not gospel. Today I mentioned a few measures of what people are actually doing.

  1. 1 Sentiment Overview: Week Of February 1st, 2008


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