Friday Market Sentiment
Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |
Below is a look at investor sentiment shown in a diagram of four investor surveys. The newsletter writers, individual investors and bloggers have all now experienced a week of capitulation where they set their skepticism aside and went bullish just when the market was making a high that may have been an intermediate top. Each of the equity surveys now shows a pullback from the bullishness as a result of choppy prices and the weakening breadth and technicals. This is generally the kind of sentiment behavior seen at intermediate market peaks. From a contrarian point of view, sentiment over the past few weeks has been bearish towards equities and supports the view that the market is experiencing a cycle peak. However, the quick retreat of the individuals and bloggers from the overly bullish levels indicates that their bullish sentiment was not very solid and was likely a brief emotional response to being on the wrong side of a strong bull market. For the bulls, this has to be encouraging and perhaps indicates that if the market is topping out, the pullback may be shallow.
The survey information above can be obtained for free via the following sites. Investor's Intelligence is from Market Harmonics. Individual Investors is from aaii.com. Market Vane is from Investment Tools and Birinyi Bloggers is from Ticker Sense.
Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders. The publisher states that it is best used as an indication of the current short-term trend, with the idea that investments in futures should be in line with the trend. So this survey has to be viewed separately from the others. For additional information about market sentiment, I recommend a blog by Brent Leonard.
Sentiment analysis is an important component when following the markets, and is considered a “contrary” indicator. Contrary because if too many people are bearish then there aren't enough sellers left, the balance tips to buyers, and the market starts to advance. If too many people are bullish, most funds are already invested, the balance tips to sellers and the market weakens. One way to determine if investors are bearish or bullish is by taking surveys and tracking at what levels these polls indicate investors are at the extremes of bearish or bullish sentiment.
Keep in mind, sentiment analysis is not a science and only provides very general information. Sentiment is not a signal to take action, but provides background about the current state of the markets. For instance, there have been many occasions when bullishness reached high levels well before the market started to weaken.
