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 |
If only the newsletter writers would capitulate and get bearish, the sentiment stage would be set for the next rally. But these newsletter writers are stubbornly bullish while the individuals, bloggers and low-risk folks have all thrown in the towel on this market. The newsletter writers are the more important group and they need more time to be pulled down into the bear camp. Sentiment has improved considerably, but unfortunately not enough. Sentiment is still working against higher equity prices from a contrarian point-of-view.
The chart above provides another view of the newsletter writer's sentiment survey. The trend is in the right direction for both the bulls and bears, but still has quite a ways to go before approaching the prior levels that work in favor of higher stock prices.
Above is a chart of the equities-only put/call ratio and it has moved up nicely to a level that shows fear towards equity prices. It has taken awhile for this spike in the ratio to occur, and based on the past spikes the ratio could zigzag a bit at these high levels before the market bottoms out again. But this chart looks favorable towards the market because investors are finally beginning to get concerned enough to hedge their positions or get downright bearish with puts designed to profit on declines.
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.
