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 |
Too many bulls among the newsletter writers, but the individuals and bloggers are back to being skeptical towards the market. The shifts lower are welcome because the sentiment last week was the most bullish froth I've ever seen, but the newsletter writers are more important and their extreme bullishness is a worry. It's more than a worry, it is a serious negative influence on the market at the moment and is working against stocks from a contrarian point of view.
Below is another view of the II survey, and the current reading of both the bulls and the bears works against stocks. This is an important signal to be cautious toward the market, but it isn't a perfect technique for assessing the intermediate cycle and has to be considered along with the other market influences. For instance, the readings were at similar levels late last fall yet the market maintained the uptrend.
While the newsletter writers survey is working against stocks, the 60-day moving average of the put/call ratio is still in a zone where it works in favor of higher stock prices. The ratio is now moving lower, and in a month or two will probably reach a low level that will mark the inflection point for the intermediate cycle. So for now, this indicator is favorable for equities. Below is the longer term view of the same chart which helps give it more perspective.
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. Low Risk is from lowrisk.com. Birinyi Bloggers is from Ticker Sense. 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.
