Sentiment Overview: Steady as She Goes

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 |  Includes: DIA, QQQ, SPY
by: Babak

Here is this week’s sentiment overview:

Sentiment Surveys
The Investors Intelligence survey, a measure of investment newsletter editors from ChartCraft is basically unchanged once more. This week we have an absolutely equal amount both bearish and bullish (35.6%). For the previous 2 weeks, the bull bear ratio has been hovering around par and this week that continues once again. The last time the bull bear ratio was this low was in July 2009 and April 2009.

AAII
This week the American Association of Individual Investors’ weekly sentiment survey had a decline in optimism. The bulls decreased from 39% to 32% while those expecting higher prices increased from 38% to 45%.

Hulbert Stock Newsletter Sentiment Index
According to Mark Hulbert, keeper of the HSNSI measuring the posture of short-term market timing newsletters, Thursday’s powerful advance did nothing to persuade newsletter editors to take on more exposure on the long side. One day, a trend does not make but this reluctance is noteworthy since normally advisers mimic the market, taking on more risk when it rises and pulling back when it falls.

NAAIM Survey of Manager Sentiment
The NAAIM survey of active money managers was little changed with the average portfolio exposure at 45% long compared to 50% long last week. This metric is still coming off the lows of early July when it hit 13.5% - plumbing depths not see since March 2009.

Consumer Confidence
According to Gallup, the average US consumer is very worried about the future economic outlook. The recent decline in economic confidence began in late June, as a response to the sharp drop in the equities market.

Gallup’s Economic Confidence Index is about to fall to its largest one-month drop since October 2008:

economic confidence gallup Jul 2010Click to enlarge

CEO Confidence
According to the quarterly Business Roundtable’s CEO Economic Outlook Survey, the heads of the largest US corporations are very confident of the business outlook in the next six months. Looking ahead, 79% of CEOs surveyed expect sales to increase - the highest since the second quarter of 2006 - and only 4% expect a decrease. When it comes to capex, CEOs are continuing to spend with 42% projecting an increase and 50% saying capital expenditures will be the same:

Expected US Capital Spending (next 6 months):
Business Roundtable Capex Jun 2010Click to enlarge

And finally, an increasing number of CEOs are planning to increase hiring. According to the latest survey, 39% expect to hire new employees (up from 29% in April 2010) while only 17% plan on reducing their workforce (compared to 21% in April).

Overall, the Business Roundtable CEO Economic Outlook Survey Index climbed to 94.6 in June from 88.9 in April 2010. Since the CEO index is a diffusion index, a reading above 50 indicates expansion. According to an independent analysis, the survey has predictive capabilities for GDP for the next two quarters. So we can add it to the list of indicators which would suggest that a double dip recession is improbable.

This optimistic outlook contrasts with the consumer surveys, as Anthony Mirhaydari explains in this recent segment from CNBC:

Volatility

The CBOE volatility index (VIX) has formed a descending triangle formation with the suggestion that any further declines in volatility - or further gains in the S&P 500 index - would cause it to drop below the support line at 23, below the level it was before the “Flash Crash” in May 2010:
volatility index VIX Jul 2010Click to enlarge

Option Sentiment
Both the ISE Sentiment Index and the CBOE put call ratio are relatively neutral so let’s instead check in with the OEX Put/Call ratio. After falling to a low in early July, the short term (10 day simple moving average) of the OEX put call ratio has risen slightly to 0.833. But the important thing to notice is that the 10 day moving average of the OEX put call ratio fell down to levels (0.80) not seen since March 2009, suggesting some serious concerns on the part of index option traders.