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Friday, August 3, 2012

Current sentiment

I have the feeling this first chart will be showing up in a lot of articles in the future about how we should all be bullish, but we will see.  I think it is interesting though.  This is a chart of the sell side analysts recommended stock portfolio percentage.  It is supposed to be bullish because we all know analysts always get it wrong.

Strategists have definitely gotten much less bullish on stocks lately.  Do they really always get it wrong?  Look at the allocation in 2002-03 time period.  They had the highest stock allocation in the history of the chart at the bear market lows.  They were exactly right and anybody that looked at that as a contrarian signal would have been dead wrong.  The strategists now have the lowest allocation in the history of the chart.  Are they right or wrong this time?  We are in a secular bear market, although most people do not realize that.  It is normal for people to be less bullish then they were during the secular bull.  I don't think it is correct to be bullish just because people are bearish. The last time they went off the chart they were correct.  There is always a chance they are right this time also.

I have seen many articles about the AAII sentiment that I posted about in http://traderbob58.blogspot.com/2012/07/odd-sentiment-survey-data.html.  Again we are being told we should be bullish because everybody is bearish.  Here is the latest chart.

The numbers of bulls and bears have gotten closer together, but the bears are still ahead.  I still think this needs to cross over to more bulls before we can say the market is on the mend.

Next up is the NAAIM survey.

At 68 the number is down slightly from last weeks 74.  However, it is still higher then it was at the May high before the swoon.  People are pretty heavily long at the moment.  If the market keeps going down there is a lot of bear fuel.  I know I have said that before, but this time the market internals are on sell signals that we did not have before.  The odds of another big bounce are considerably lower now.

Here is the II survey.

Notice the cross of more bears then bulls in both 2010 and 2011 before the market corrections ended.  We are still a pretty long ways away from that happening.  Even though we have the most bears in quite some time, this is still a very low number.

The last one is the Nova/Ursa ratio.

This chart has been up and down with the swings in the market.  It is in the high end of the range.  We are a long way from the low we reached last fall.  There is bear fuel here also if this market keeps going down enough to scare the traders out.

I have been watching sentiment surveys for over 10 years and I can't recall ever seeing a period in time with such polar opposites.  I think the sell side analysts and AAII surveys reflect fears that we are going into recession.  The more trader related surveys seem to be bullish based on the election year theory, it can't crash three years in a row theory, or the FED will save the world theory.  Time will tell if any of those theories are valid.  My theory is the market always moves with the fundamentals eventually.  It often disconnects for varying periods of time, but in the end, the fundamentals always win.  Currently the fundamentals are getting worse.  For this market to really get going on the upside that will have to change.


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