Sentiment Overview: Bullishness Is on the Rise, Insiders Are Buying

Here is a recap of the important sentiment news for the past week:

Sentiment Surveys
Retail investors and traders continued their complacent mood. According to Wednesday’s AAII sentiment survey, the bulls increased to 44.83% and the bears continued to fall, reaching a mere 33.33%.

Tuesday’s results from ChartCraft’s Investor’s Intelligence weekly survey resulted in an increase in bullishness to 30.3% and decrease in bearishness 48.3%

I continue to be a little disappointed by the rapid mood change shown by these traditional sentiment indicators.

Corporate Insiders Buying
Various sources of data for insider activity is showing a marked uptick in buying. Corporate insiders are considered to be “smart money” so this is a good sign. The fact that they are now buying cheap stocks means that they believe that stocks have fallen enough to be a compelling value. This isn’t so much a sentiment measure as a real measure of behavior. So in a sense it has more weight because what someone says on a survey is one thing, but what they do with their cold hard cash is another.

Volatility
Volatility hasn’t imploded, yet. But we are off the all time record highs of both the VIX and VXN. As well, we seem to have put in a small lower high with the VIX index ending at 55.14 - now it needs to put in a lower low.

Seasonality
The stock market has entered into positive seasonality. Although this doesn’t guarantee in any sense that the market will go up, it does mean that we have the wind at our backs. This may mean nothing when you consider that we are having one of the blackest black swan years.

Rydex Nova Ursa Ratio
It has been a while since I mentioned this sentiment indicator. Mostly because it wasn’t registering any extreme readings. Except for the most recent data point from late October.

The Rydex mutual fund family is in danger of becoming a vestigial financial vehicle. For those unfamiliar with this indicator it used to be the fast moneys preferred choice since it was the only mutual fund priced more than once a day and offered a way to profit from both the rise and fall in the market. Of course, with today’s plethora of ETF and levered ETFs Rydex has been left in the dust.

But the most recent ratio shows that the fast money switched heavily into the bearish market timing fund leaving the bullish one in droves.

Magazine Covers
Here are two interesting recent magazine covers. These are worthy of note and perhaps good contrarian indicators because they are general interest publications which usually do not focus on the economy or the financial markets. So the fact that they have devoted a cover and made it so excruciatingly negative in its symbolism is telling.

Comments

[Steven Hansen:]

the market does what the market does. economically speaking there are no positive leading indicators, and the economic outlook is opaque. i will have to let the bargain stocks go to others including the insiders.

2008 Nov 09 07:07 PM

[herbert hoover:]

Yeah right. Unemployment rising, Consumer confidence falling. Corporate profits dropping. I think I'll pass on stocks for now.

2008 Nov 09 08:31 PM

[gabe borens...:]

It suffices to say that the mega rally is on the way in the period ahead.
It will dwarf and redefine previous impressive 900 points spike.
Volatility will continue but the global focus/action aimed at the economic revival will exceed the expectations.
Remember ,mega rally =s Gabe.

2008 Nov 09 11:54 PM

[You're Kidding:]

There may be a wind at our backs, but there is a hurricane at our front.

2008 Nov 10 12:34 AM

[1worldcurrency:]

Still going, pump monkey Gabe? I hope you aren't leveraged. Sentiment doesn't produce a viable electric car.

2008 Nov 11 08:13 AM

[contracontr...:]

Many investors are bullish,but out of the market-thinking they all will get back in slightly after the bottom...others are waiting for everyone else to get bearish (everyone "knows" today,that's the right time to buy)...

This paradoxical situation should lead to something like a reverse crash early next year,with sentiment surveys reaching their worst readings after the fist leg up in the market,instead of exactly at the bottom,like one would expect

2008 Nov 11 04:57 PM