|
|
|
|
|
|
 |
 |
A Schizophrenic Kind of
Market January 3, 2008
-------------------------------------------------------------------------------------------------------------------- This is an abbreviated sample of a comment posted for subscribers --------------------------------------------------------------------------------------------------------------------
Back in early November, we went over a few data points suggesting that caution was warranted, as small options traders were showing extreme enthusiasm for a continued market rally, and volume on the more-speculative Nasdaq exchange was beginning to blossom. Both were signs of too much confidence in the market, and equities got slapped soon afterward.
By mid-November, things had changed quite a bit. As we went over at the time, there were any number of signs beginning to proliferate that showed investors had become much too fearful of a continued drop, and the market should rally. The rebound off those November lows then fit in perfectly with historical precedents which had suggested a one- to three-month rally of 5% - 10%.
Over the past month or so, however, the signs among the sentiment, breadth and technical measures we follow have become much more mixed. So mixed, in fact, that the intermediate-term looks like a big muddled mess.
That is perhaps best reflected among a couple of the sentiment surveys we update regularly, both of which have admirable records of pinpointing extremes in investor sentiment and subsequent market returns.
Currently, we're seeing the Investor's Intelligence (I.I.) survey throwing off readings reminiscent of market peaks. With a Bull Ratio of 68%, it's telling us that among those expressing a definite opinion on market direction, two-thirds of the survey sample expect the market to rise.
But then there's the American Association of Individual Investors (AAII) survey. This poll is showing pretty much the polar opposite of the I.I. survey, with a current Bull Ratio of only 32%. So among that group, only about one-third of the respondents expect the market to go up.
A big part of this divergence can be explained by the different populations each survey covers. Investor's Intelligence is focused on newsletter writers, of which they monitor around 150 and try to divine what they're telling their subscribers.
The AAII survey, on the other hand, is an online poll of members of the AAII organization. Members submit their bullish or bearish vote once a week, and they cannot vote more than once.
It's fairly common knowledge within the newsletter industry that bullishness pays, and bearishness does not - no matter what the market is doing. Being right on market direction isn't necessarily an important ingredient to doing well. There are some exceptions to that rule, with some so-called perma-bears retaining a wide audience because of some special insight on specific industries, or other reasons particular to that individual. But, in general, newsletter writers have learned to be a bullish group on average, especially during an up-trending market.
Individual investors, on the other hand, don't have any special interest to which they must answer, and therefore can give us a better read on what the man on the street is thinking.
Even though the surveys encompass different populations, for the most part they tend to move together - when the market rises, newsletters become even more bullish and individual investors do too; when the market falls, they all tend to dampen their expectations accordingly.
Except for now.
-------------------------------------------------------------------------------------------------------------------- This is an abbreviated sample of a comment posted for subscribers -------------------------------------------------------------------------------------------------------------------- Home | Commentary | Indicators | Models | Sectors | COT | Subscribe | About Us
© 2001-2007 Sundial Capital Research, Inc. All rights reserved. Disclaimer. sentimenTrader.com is a trademark of Sundial Capital Research, Inc. Sundial Capital Research, Inc. PO Box 341 St Michael, MN 55376 e-mail: admin@sentimentrader.com |
|
|
 |
|
|
