Each week, WhisperNumber.com conducts a markets confidence survey. In our recent investor survey, The Market Vectors Retail ETF (NYSEARCA:RTH) continued to have an "extreme" confidence reading. An under-confident or low percentage result indicates an oversold market where strength can be expected. An over-confident or high percentage result indicates an overbought market where weakness can be expected. (In other words, data requires contrarian interpretation.)
The Market Vectors Retail ETF falls under the Consumer Cyclical category. Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD), Amazon.com (NASDAQ:AMZN), CVS (NYSE:CVS), Lowe's (NYSE:LOW), Costco (NASDAQ:COST), Target (NYSE:TGT), and Walgreen (WAG) comprise the bulk of the holdings in RTH.
In 2012, we had three extreme readings (indicating strength) for the Retail sector. All three were long, and all proved profitable. The first reading was gained in our February 24, 2012 survey. At that time, RTH traded near the 39.75 mark. The oversold trend lasted until April 17, 2012, when RTH was trading at 41.45. This resulted in a gain of 4.3%.
The second reading occurred in our July 13, 2012 survey. At that time, RTH traded near the 42.37 mark. The oversold trend lasted until August 13, 2012, when RTH was trading at 43.39. This resulted in a gain of 2.4%.
The third reading occurred in our August 24, 2012 survey. At that time, RTH traded near the 43.91 mark. The oversold trend lasted until September 17, 2012, when RTH was trading at 45.17. This resulted in a gain of 2.9%.
Our most recent extreme market confidence reading was gained in our January 4, 2012 survey. At that time, confidence dropped to a low of 0.0% (indicating no investor confidence in the market). This matched the 52-week low (with the 52-week high at 7.0%). At that time, RTH traded near the 44.29 mark. The oversold trend continues through today, with RTH trading near 46.63. So far, this a gain of 5.3%.
The RTH data is one of six readings in our survey that have proven 100% accurate in 2012 in determining market direction. The current oversold market trend for the sector continues to indicate the potential for additional market strength.
WhisperNumber.com conducts weekly surveys to its registered userbase of individual investors. We've been conducting these surveys since 2002. Each survey, on average, receives over 1,100 responses from our participants.
The premise of each question is: How confident are you about the future of the market? This question is asked of the general market (Dow, S&P), 11 market sectors, 12 Exchange Traded Funds, 10 Global Regions, and three Bonds markets.
We look to see where the "herd" is headed, and take the opposite route. The "herd" (in this case, actual investors) is usually chasing a market higher or lower. In some cases, chasing the market does yield positive results, but in most cases, chasing a market ends up in losses. Analysis of our data concluded we were taking a snapshot of sentiment that indicated the opposite of actual market moves. Thus, it required contrarian interpretation in order to be accurate.
The responses collected from these surveys are presented in the Market Whispers Market Confidence Report. The responses are percentage-based, but also include a simple overbought, oversold, or neutral tag, along with basic commentary. An over-confident or high percentage result indicates an overbought market where weakness can be expected. An under-confident or low percentage result indicates an oversold market where strength can be expected.
To determine the oversold, overbought, and neutral ranges, we've analyzed the past 52 weeks' high and low confidence readings for a given market, with an analysis of historical price movement to determine cut-off points.
All trading involves risk and the information presented is not intended to be a recommendation of any kind.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.