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All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

Contrarian sentiment continues to move in the right direction for the bulls as newsletter writers, individual investors and bloggers become more cautious about the market.  In fact, the volatile blogger's sentiment is so negative they have gone below the range provided in the figure. 

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It had registered in the bullish extreme for a number of months.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better 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.

The figure above shows four polls and their current sentiment levels.  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.

It is a good idea to check in with the VIX at least once a week to get a feel for where it stands in relation to the stock market, and right now the VIX is spiking dramatically higher.  I'm not an expert on the VIX, but my view is that it needs to be generally moving slowly lower to be supportive of the equity market.  The current high level generally indicates the current sentiment is highly volatile and fearful, but if the VIX remains below the spike high of early March, that will be a subtle positive for the market.  For a much more thorough analysis, check out VIX and More. 

Can you believe this spike in puts?  The 10-day moving average of his ratio is off to the moon.  This has been encouraging to the bulls.  This extreme high level will probably need to be retested a bit with some up and down movement before the correction is over, and the current highs should not be exceeded for a favorable signal.

This is my preferred put/call chart and it shows the upward move of the 60-day moving average of the put/call ratio has moved to the halfway mark.  I think this correction needs more time to establish lows and wash out, but this chart is encouraging.

Below is the chart that I use to remind myself that there is plenty of potential left for prices to move lower.  It is expected for prices to consolidate at the halfway mark before they complete the process.  There is no guarantee prices will touch the lower the channel line, but it is a reasonable target.  Also, we need to be careful of corrections like the one after the 2003 run up where twice prices bounced back very nicely only to suck us back in before issuing much more pain.

I don't have time to discuss these next two charts regarding the current mortgage-related problems, but I'm leaving them here to ponder for a future discussion.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

Tickersense has some important comments this morning about the gigantic swing in sentiment showing up in Monday's down volume versus Tuesday's up volume.  I might add to it that we've already noted here how NYSE Short Interest was near record high levels when this sell off started which is the opposite of what you normally see.  So I suspect there were a lot of shorts who felt they had to cover Tuesday when the market started to take off which would account for at least a large part of the huge swing in sentiment.

As noted last Wednesday, the sentiment surveys were likely to make a large shift to lower levels of bullishness due to the dramatic market sell off.  The AAII survery has lately been volatile, so I think by the time the capitulation low is registered for this correction we'll see this survey in the green.  The II survey is much more steady, but it too is likely to reach at least a week or two of low levels.  They are both certainly now moving in the right direction as we look for a contrarian low in sentiment.  The Birinyi survey had a minor spike in bullishness just before the correction began which turned out to be a signal the top was near.  The participants in this survey have yet to find their footing in terms of anticipating the market, but the consistent high level of skepticism is really interesting and maybe is a tiny peek into a larger consumer attitude that is part of what has kept this long-term bull intact.  I didn't think it was possible, but the MV survey has finally shifted lower.  This is a survey of commodity traders and even they are a bit shaken in their resolve by the past 6 trading days.

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It had registered in the bullish extreme for a number of months.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better 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.

The figure above shows four polls and their current sentiment levels.  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.

The put/call index is off the chart!  Well the sentiment certainly has shifted from bull to bear in a hurry.  This has to be a positive sign for the bulls who are looking for a contrarian sign that the market participants are becoming overly fearful.  However, I really think one week is not enough time for emotions to settle and for a correction to run its course.  Or maybe it is just that I am not agile enough to handle a swing in sentiment this swift.

Below is a better look in my opinion at the put/call ratio which shows there is plenty of room for the moving average to travel higher as the market sorts out where equity prices will bottom out.

Below is the same chart using the 60-day ma but with a shorter time period for a closer view.  The peaks in October 2005 and August 2006 coincided very nicely with the upside breakout in the index, even though the price lows were registered before the put/call ma peaks.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Below is the graph of the weekly sentinment surveys.  Of course, these surveys were probably taken before yesterday's big drop so I'm not sure how useful they are today.  It will be really interesting next week to see how the sentiment changes.  Also, last weekend I posted the monthly short interest figure for the NYSE which remains at a high level.  So you might want to scroll down to see that post.

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It has registered in the bullish extreme for a number of months now.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better 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 and more thorough analysis about market sentiment, I recommend blogs by ZenTrader and Brent Leonard.

There is very little I can add to what happened Tuesday that is in addition to what you already know.  The carnage is being posted to blogs all over the place and the bad news is well known.  So I might as well point out the shreds of not-so-bad news.

The NASDAQ broke the up trend line and is below the 50-day moving average, but it found support right at the lower band of the trading range it was in from Nov to Jan. 

The mid caps didn't break below the 50-day.  This is the area of relative strength, not that I am advocating any kind of investment.  But it is important to at least try and see what is going on.

The OBV and the bullish percents, along with the rounded topping pattern, were hinting at the weakness in this index.  No surprise then that this fell off a cliff today and there is nothing much to catch it below.

The energy weighted AMEX is above shelf support, the up trend and the 50-day.  Also, notice how these indexes that held up better today have much better looking OBV.

Be sure to read the comment to this post by the author of VIX&More.  I sent him a note asking for his thoughts on this big spike.  He offers some interesting points about big spikes in the VIX which I will follow-up on in the future.

The huge increase in puts means that the correction is well underway and people are hedging, but paying a premium to do it.  The best opportunities may be when this ratio is near or above the prior peaks, as long as the overall bull market is still intact.

I like this longer-term picture better because it shows so clearly how the peaks have been opportunities in a bull market. 

A lower low in the monthly VIX in Jan, and then a higher high this month.   Last summer was a higher high in the VIX as well.  The trend in the VIX may be reversing, but I'm not sure what that means for the equity market.

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.

The figure above shows four polls and their current sentiment levels.  Keep in mind, sentiment analysis is not a science and only provides very general information.  Sentiment is not a signal to take action, but is a warning about the current state of the markets.  There have been many occasions when bullishness reached high levels well before the market started to weaken.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

The newsletter writers, individual investors and bloggers are in the neutral range which is generally a level that is favorable to the stock market. 

The newsletter writers were extremely bullish early in the year and that was a major warning that the market had become extended.  I am most familiar with the newsletter survey which generally peaks and then moves lower prior to a peak in the market, and that is what appears to be happening with this cycle.  So at the current level it is short-term supportive of the market, but because it has already peaked for this cycle, it is also a caution signal about the market. 

The second chart is taken from a blog site named Market Harmonics that I reached via the blog site The Sentimentals.  This chart illustrates the highs and lows of the newsletter survey and how it peaks prior to the market peak.  Because the survey peaks can be so early, it shows that this type of sentiment survey is to be used to understand the background that the market is operating in, but not as an indication that the trend of the market itself has changed. 

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It has registered in the bullish extreme for a number of months now.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better 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.  I will let readers make up their own minds on this survery.

For additional information and more thorough analysis about market sentiment, I recommend blogs by ZenTrader and Brent Leonard.

It is a good idea to check in with the VIX at least once a week to get a feel for where it stands in relation to the stock market.  I'm not an expert on the VIX, but my view is that it needs to be generally moving lower as the market moves higher in order to confirm the market.  But if it moves too low it indicates a trend towards complacency which is ultimately bearish for the market.  On the other hand, small spikes higher in the VIX can be short-term buying opportunities in an uptrend, but that is until the VIX moves above recent retested upper levels which may indicate a correction is unfolding.  So the current level and trend of the VIX looks about right to me in order to say that it is acting favorably in relation to the stock market.  For a much more expert and thorough analysis, check out a really interesting blog site that has terrific discussion of the VIX and related topics called VIX and More.

The 60-day moving average of put/calls seems to be following a pattern similar to the one shown in the prior market peaks.  The index has reached a low shown by the lower trend line, and has started to curl higher in advance of a peak in the market.  This appears to be another general warning signal about the intermediate cycle and that it may be nearing a top.  It is a bit confusing however that the level of short interest, shown in the next chart, is at extreme high which is bullish for the market, while this put/call ratio is at a low level.  I will let the readers decide for themselves

The most recent figures on short interest are as January 19, 2007. 

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.

The figure above shows four polls and their current sentiment levels.  Keep in mind, sentiment analysis is not a science and only provides very general information.  Sentiment is not a signal to take action, but is a warning about the current state of the markets.  There have been many occasions when bullishness reached high levels well before the market started to weaken.