Bill L.'s  Instablog

I've gotten some requests for data sources, and since I'm not writing regularly anymore I figured I would just share of the best free sources of sentiment data that I know of and which I used for my sentiment updates.

1) Put/Call Ratio: For this I use stockcharts.com (here's the link: stockcharts.com/h-sc/ui) and I enter in the ticker symbol $CPC. This can also be broken up into two parts, equity only and index only, ticker symbols $CPCE and $CPCI. I typically add a 5 and 10 day moving average to smooth out the fluctuations.

2) Blogger Sentiment: This follows the recommendations of some of the more popularly visited financial blogs out there, here's the link: tickersense.typepad.com/ticker_sense/

3) Active Investment Managers: Tracks how active managers are positioned. Here's the link: www.naaim.org/news/naaim-survey-of-manager-sentiment/

4) AAII: Tracks individual investors, also allows you to download all previous data in excel format for analysis. Here's the link: www.aaii.com/sentimentsurvey

5) Investors Intellegence: Follows newsletter writers, I wish there was a more complete downloadable record, but or well at least it's free. Here's the link: www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx

Hope it's useful!

-Bill L.

Summary:

While the stock market is off in la-la land, I've been looking for more reasonable risk reward setups, more specifically right now I'm long some GLD.

Originally this idea was flagged to me by Sundate36 in the comments section, here is the original article is recommended reading.

Commitment of Traders:

Looking at the most recent commitment of traders report, commercials have been going long gold for several weeks now as the GLD approached some decent looking horizontal support.

So clearly while the public has been losing faith, the bookies of the futures world had some faith in gold finding some sort of a foothold.

(click to enlarge)

(click to enlarge)

(click to enlarge)

Notes: The basic oscillators hit oversold while price entered an area of horizontal support. Furthermore the Gold COT revealed that commercial hedgers had been increasing their net position, while small speculators have been giving up on gold.

Seasonality:

Furthermore, in terms of seasonality February tends to be very negative for Gold, with performance improving in March, and going positive into April. If we get another soft patch in the summer, that could present another good buying opportunity into the fall months.

(click to enlarge)

Other Notable Notables:

• According to Sentimentraders public opinion indicator, public opinion recently dropped to the lowest level visible on the chart (going back to 2007). It has since improved a tad, but remains at very low overall levels.
• According to Hulbert Financial Digest, news letter writers have also turned negative on gold, and are now recommending a net short position in gold. This however tends to work better as a contrarian indicator, and these low levels have historically been a bullish sign.
• According to Rydex, the assets in precious metal funds has fallen to historically low levels.

Summary:

The risk reward in gold is skewed enough for me to try a long position in GLD, I'm long until we start to see some of these indicators reverse, and I'm out if we break below the green area of support in the first chart (around 147 in the GLD).

-Bill L.

So I've taken a little hiatus from the daily update because I wanted to point out some of the longer term indicators I watch but don't speak about too often. Which brings me to margin debt. I always seem to get the most pointed and emotional criticisms at major inflection points. Probably because I'm a contrarian at these points, and those who don't agree have a lot on the line. How much? Well, just about the most ever according to data from the NYSE.

I keep a spread sheet of NYSE margin debt, you know, for fun. It's a very long term indicator, and not very "trade-able". But as a long term windsock of sorts, it can clue you in to when the term trend is getting long in the tooth.

Chart 1: NYSE Margin Debt (MM)

(click to enlarge)Notes: We can see from the chart above that the amount of margin debt in nominal terms has already exceeded the level that corresponded to the 2000 dot.com bubble, and is quickly approaching the 2007 highs.

Chart 2: NYSE Margin Debt, Inflation Adjusted

That said, $325 billion ain't what it used to be. We've endured quite a bit of inflation, thank you Fed, so I decided to adjust for inflation using the CPI and 1995 of my base year.

(click to enlarge)Notes: So here we can see that margin debt in terms of 1995 constant dollars hasn't risen as high as either bubble peaks. The market seems to peak when we get to that $250 billion range and we're not quite there yet. That said, the economy was a lot stronger in 2007, and stronger still in 2000. Like I said, this data isn't very trade-able, meaning it gets to X and you automatically do Y. Still, whether you're looking at the nominal or real amount of margin debt, things are getting interesting...

-Bill L.

Disclosure: I am short SPY.