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Brent Leonard is thinking of dropping the blogger survey from his list of sentiment indicators. No way am I dropping this survey. Following the bloggers has been really interesting because their results have been so opposite the market.
Apparently, last week's spike in the blogger survey was a one week event and their outlook has turned lower again very quickly. This type of swing in the survey results shows that emotions are running high as the bloggers feel the pain and confusion of being so consistently out-of-sync with the market. They were very bearish during the entire uptrend in prices after the mid 2006 correction. Then, after the collapse in prices when the financial crisis hit, they turned bullish. They maintained their bullish survey results for a while until the market weakness forced them to rethink their outlook and they then followed the market lower.
This poor market timing on the part of the bloggers occurred while the individuals were out in front of market events. They went bearish ahead of the price declines and have stuck with their negative outlook showing very little emotion while the market swung down, then up, and then down again. The individuals have been reading the market tea leaves better then the bloggers... or the writers.
The writers were also whipsawed by the market as they seemed to be way too optimistic about the early Fed rate cuts supporting stock prices. They were lured back into the market by their faith in the Fed, and probably their desire to be bullish because they know that bullishness sells newsletters a lot better than advice to sell and sit in cash.
Where does all this leave the outlook on stocks? All three surveys are at low bullish sentiment levels. From a contrarian point of view, this is favorable or supportive of stock prices because these low levels of sentiment indicate that most of the selling has occurred. Unless the economy starts to really unravel, the brutal selling is probably behind us.
Above the larger view of the writer's survey results provided by Market Harmonics. We are now at weak levels of bullishness and high levels of bearishness that is close to even. You don't get sentiment readings much better than this. Of course, there are other factors to consider, but these results solidly support the view that the market has bottomed out intermediate-term.
Corporate insiders remain bullish on the prospects for the stock prices of their own companies. Although the selling ticked up a bit, these are still favorable levels. Investors Intelligence reports that the current level of insider buying is the best since August 2002 during the darkest days of the post 9/11 bear market. These figures come from Brent Leonard's market sentiment blog.
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. Birinyi Bloggers is from Ticker Sense. For additional information about market sentiment, I recommend Brent Leonard's market sentiment blog.
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.
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Ken Tower may be correct. But most