Ticker Sense Blogger Sentiment: Does It Have Any Value?

A reader asked that I revisit my dismissal of Ticker Sense’s blogger sentiment poll so here’s a chart to see if we can once and for all decide if this has any value to analysis of stock market

sentiment.

The Ticker Sense Blogger Sentiment poll started on July 10th 2006. But it was a while until it registered any extreme readings. My definition of “extreme” would be a bull/bear ratio of 0.60 and under or 1.71+ (I ignored neutral readings). To make it easier to visualize, I’ve only included these extremes - red and green dots respectively:

For an example of extreme optimism: recently, on October 13th, 2008 there were 75% bulls, zero bears and 25% neutral. While a good example of pessimism was on March 12th, 2007 with only 13.16% bulls, 42.11% bears and 44.74% neutral.

The first thing you notice is just how erratic this sentiment measure is. Although bloggers are asked: “What is your outlook on the U.S. stock market for the next 30 days?” they seem to be ready to change their minds from one extreme to the next at the drop of a hat.

Another characteristic is that while they put in a continuous string of bearish extremes in late 2006 and into mid 2007, they often jump from one extreme to the other and back.

I was going to put in a complete statistical analysis of the data points but I noticed that CXO Advisory Group had already done so:

Source: CXO Advisory Group

Their conclusion is what I said last year, Ticker Sense blogger sentiment poll provides no edge.

Why not?
Right off the top of my head I can think of a few reasons for this indicator’s lack of value. The sample size is extremely small (20 bloggers) and it gets smaller since only a fraction participate each week.

Second, bloggers may be watching their own sentiment and adjusting accordingly. They are after all, a pretty savvy bunch and sentiment indicators and contrarian analysis is not unknown to them. This might explain why they swing from one extreme to the next at times.

Third, they may be reacting to what has happened rather than what may happen. According to the study done by CXO 11% of the sentiment can be explained by the market’s behavior. So there is a mix of reactiveness and proactiveness which may muddle things.

In the end though, it doesn’t really matter why, the data speaks for itself. Ticker Sense’s sentiment poll provides no edge whatsoever.

That’s why I’ll continue to ignore it, except to point out from time to time when it does go to extremes and garners attention… that it should be ignored.

Comments

[aarc:]

Best way to look at this "once in a century" economic crisis is to look at the 100 years history of Dow Jones. The Dow Jones 100 year chart history.

First massive correction happened in 1929 to 1932 when Dow Jones plunged from 500 to 42 for a 90% haircut triggering the "great depression". That plunge was understandable since the Dow Jones was still very young and more prone to severe but short duration pullbacks. Look at the emerging markets; they are now plunging to 70-80% haircuts in extremely short period of time. What do you expect of young economies and stock markets?

Next major DJ correction was from 1965 to 1980 where DJ kept on failing to break above the 1000 level. They say it was caused by massive oil-price induced inflation. Looking at the chart, correction was mild with 700 or 800 lows and 1000 high. We call it shallow correction and shallow corrections usually take time to resolve hence the 1965 to 1980 time frame. Also, a market tends to go into shallower corrections as it matures.

After year 2000 and Dow Jones of 12000 level. Another massively severe correction to 7200 of late 2002 unfolded within only a little less than 3 years caused by the implosion of the tech bubble. Everybody thought that was the end of it.

Well, the rally from late 2002 to 2007 took almost 5 years making it a suspect as an impulse run. Basically, the rally from year 2002 to 2007 of 14200 level is a corrective rally. You only have to look at SnP500 monthly chart and a double top pattern says the corrective phase was not done yet.

After the double top pattern; either SnP will produce a higher low or a lower low is the big unknown.

I like double top patterns since most of them finally resolve to the upside after undergoing the necessary pullback. Some TAs even believe that there is no true double top since the top simply got broken to the upside later on.

However, this last 2 months panic and margin call sell-offs got the charts in extreme volatility and momentum to the downside is simply too strong that in very high probability will only result in lower lows after a few weeks of minor consolidation in order to produce a bullish momentum divergence on the weekly chart.

That weekly momentum divergence buy signal still is not capable to overcome the massive downside momentum that has been generated on the monthly chart. Hence, another momentum divergence buy signal will be needed on the monthly chart before a more stable impulsive rally can commence.

How about SnP500 600 to 700 area? SnP 2002 low of 768 simply look terribly weak against the plunging price bars and the momentum the last 2 months have generated to the downside.

In the scheme of things, the 1929 to 1932 stock market plunge seems benign. Basically because the stock market was not really an investment vehicle for most Americans back then. Also, global stock market chain reaction was not really that at that time.

This time around, more than 50% of americans and around the western world are invested in their stock markets. Even workers or employees have direct exposure to the stock market thru their 401k, mutual funds, and hedge funds.

Then consider the massive stock market chain reactions occuring right now all over the world. Consequences could be dire.

A depression worse than the "great depression" unfolding?

After this crisis (if the free world survives this once in a century crisis), how about another 100 years rally with 2 recessions along the way?

That is, if the free world would still be called free after this massive upheaval.

Remember, the 1929 to 1932 stock market upheaval took only 3 years but was able to produce 10 years of depression. This current stock market upheaval is taking more than 8 years already in most of the industrialized world's stock markets. What kind of economic and/or political damages will it produce and how long will it take are still unknown until after we experienced them.

The emerging markets are experiencing the same fate US and Europe did during the 1929-32 crash. Only difference is that most of them are cash rich and much less percentage of their population are directly involve with their stock markets than the west did during the roaring 1920s. In essence, the emerging markets should emerge out of this crisis much better than the western world did in the 1930s unless something really bad happens in the political arena of the G7 members.

How about another Hitler? At least we know this as a possibility and the G7 should be able to handle such problem. The great unknow is still unknown tho.

Best not to ignore ticker sense. At the rate the stock market is going. There are lots more to come.

2008 Oct 27 11:18 PM