Consensus, Inc. Sentiment Survey

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APPLICABLE TIME FRAME(S):  

INTERMEDIATE

UPDATE SCHEDULE:

Each Saturday morning by 11:00 AM EST

REPORTING DELAYS:

Two weeks, so the most recent update will be at least two weeks old.

EXPLANATION:

The Consensus survey monitors the attitudes and positions of an extensive mix of both brokerage house analysts and independent advisory services (they have several hundred contributors).  The data covers a broad spectrum of approaches to the market, including the fundamental, technical and cyclical.  Only after an advisor or analyst publishes their opinion - and it has a chance to influence the investing public - does Consensus consider the opinion for their survey.  The editors determine the percentage of their contacts who are bullish on the market.  Like most contrary indicators, when the survey shows too many advisors as being bullish, it very often corresponds to market highs.  Conversely, too many bears suggest that the market may soon find a low.

The weekly Consensus number of bullish advisories is available each week in Barron's.

GUIDELINES:

The general level of bullishness has decreased during this bear market, as the mean value of the bullish percentage has decreased from 44% prior to the bear market to 37% after.  This has shifted the values for when we determine the percentage is extreme, as is outlined in the table below the chart.

The chart below shows two occurrences of the Consensus bullish percentage reaching extremes.  In April 2001, the advisors polled by Consensus began finally gave up the ship and converted to a bearish or neutral stance.  This caused the bullish percentage to drop more than two standard deviations from its mean - a significant event.  Not surprisingly, this extreme in bearishness coincided with the low in the S&P.  Within two months, however, the professionals polled by this outfit resumed their bullish positionings, to an extent that pushed the bullish percentage more than two standard deviations ABOVE its mean.  Once again, the "consensus" was incorrect, as the market fell immediately thereafter.

Although this is a real example and points out the value of following this information, we do not mean to intimate that the market ALWAYS peaks when the bullish percentage becomes extreme, or troughs immediately after the bullish percentage drops below 13%.  It is a guideline and not a trading system unto itself.

STATS:

*Standard Deviation.  See below:

68% of readings (1 standard deviation) should be between 25% and 49%

95% of readings (2 standard deviations) should be between 13% and 61%

99% of readings (3 standard deviations) should be between 1% and 73%

In other words, we should expect a reading under 13% or over 61% approximately 3 times per year.  Since such a reading would be relatively unusual, it suggests that we may be seeing an unsustainable trend.  These figures assume a normal distribution curve.

ADDITIONAL RESOURCES:

Consensus, Inc. (www.consensus-inc.com)

Barron's (www.barrons.com)

© 2005  Sundial Capital Research, Inc.  All Rights Reserved.