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Bill L.
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Methodology: setups require certain criteria to be met before trades can be executed, which include weighted statistical studies on several indicators of price, breadth, volume, and sentiment . Amount of risk taken is proportional to how many indicators are aligned. I mainly trade market... More
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  • Friday, February 1, 2013 - Weekly Sentiment Report

    Bottom Line:

    A picture is worth a thousand words, and I don't feel like writing that much, so tonight's bottom line comes from the desk of Bespoke...

    (click to enlarge)

    The Put/Call Ratio ($CPC):

    The put call ratio measures the rate at which option traders are buying puts (bearish bets) compared to calls (bullish bets). This indicator is the most useful once it reaches extremes; when the market is topping investors are typically far too optimistic and when the market is bottoming they are far too pessimistic.

    (click to enlarge)

    Analysis: Despite the new highs, the put/call ratio has gradually hovered back to the mean. The related indicator, the VIX, however still remains extremely low. So while the ratio of bearish bets to bullish bets has trailed off from it's recent put bias, the cost of protection remains extremely low.

    Grade: The 5 day moving average of the put/call ratio has mean reverted, still because of the extremely low VIX, has a whole I'm still grading this indicator Bearish.

    Weekly Blogger Sentiment:

    To quote Ticker Sense directly, "The Ticker Sense Blogger Sentiment Poll is a survey of the web's most prominent investment bloggers, asking "What is your outlook on the S&P 500 for the next 30 days?" Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers -- a community that continues to grow as a valued source of investment insight."

    (click to enlarge)

    Analysis: The spread between bullish and bearish bloggers has come in a bit, but still remains very wide, and near extreme levels.

    Grade: Bearish

    Investors Intelligence:

    Investors Intelligence is a weekly poll that surveys newsletter writers. While they are professionals they too are subjected to group think, fear, greed, excitement and all the other broad range of emotions that can hamper objective market analysis. One interesting note; when the market is topping, peak optimism is generally reached before the final index price high. This indicator works best as a contrarian indicator when extremes are reached.

    Analysis: Not the widest spread I've ever seen, but just looking at the percentage of bullish newsletter writers, we can tell this market is getting frothy. The last several corrections have all started when bullish sentiment was near these levels.

    Grade: Bearish

    The American Association of Individual Investors (AAII):

    The AAII is a service that polls individual investors. Individuals tend to be more sensitive to price movements than the respondents for the Investors Intelligence survey, though the indicator works much the same way.This indicator works best as a contrarian indicator when extremes are reached.

    Raw Numbers:

    (click to enlarge)

    Bull - Bear Spread:

    (click to enlarge)

    Bull / Bear Ratio:

    (click to enlarge)

    Analysis: Like the previous indicators we've reviewed, here to bulls have backed down a bit. But when looking at the spread, or the bull/bear ratio we can see that individuals have formed a strong consensus opinion that occurs very rarely. Just eye-balling the charts above, they reach this level of bullishness only once a year or so.

    Grade: Bearish

    National Association of Active Investment Managers (NAAIM):

    The NAAIM polls active investment managers. While this poll hasn't been around very long, its short history tells us what we already suspected; professional managers tend to perform no better than most individuals, they're over-invested at tops, and caught short at bottoms. We can however turn their group think into something useful and use this data as a contrarian sentiment indicator.

    (click to enlarge)

    Analysis: In case you missed here, here's a link to my initial reactions when I saw the numbers cross. Several records were broken this week in terms of the level of bullishness among money managers. Click the link for a breakdown.

    Grade: Bearish

    Short Interest:

    In the last few years ETFs have become a popular instrument for individuals and institutions alike to quickly and easily get long or short the market. Their overall popularity has skyrocketed, so it pays to pay attention to short interest in some of the most popular index ETFs.

    • Short Interest, SPY:(click to enlarge)
    • Short Interest, DIA:(click to enlarge)
    • Short Interest, QQQ:(click to enlarge)

    Analysis: Most of the popular ETFs saw a slight uptick in short interest in the last update, but now most have come right back down to multi year lows.

    Grade: Bearish

    Summary:

    We've looked at the options market , bloggers, newsletter writers, individuals, the futures market, professional money managers, and ETF investors. This should provide a pretty complete view of overall market sentiment.

    Grades:

    • Bullish: 0/6
    • Neutral: 0/6
    • Bearish: 6/6

    Summary: Some indicators came back in a bit, while others like the NAAIM skyrocketed to unseen heights. The aggregate picture is that there is a lot of consensus on the direction of the stock market, and a lot of consensus usually means the opposite will happen. Tread carefully up here...

    -Bill L.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

    Tags: SPY, DIA, QQQ, IWM, XLF
    Feb 01 5:33 PM | Link | 4 Comments
  • Before You Buy Stocks, Read This: NAAIM Record Bullishness

    So I usually do all the sentiment stuff on the weekends since the COT charts are not updated until Friday even. Today however I was looking at all the other surveys, most of which get's updated on Wednesdays and Thursdays... Looking over the NAAIM number my jaw dropped open.

    NAAIM:

    (click to enlarge)

    Yes, the chart is maxed out. It's literally off the scale.

    Looking over the raw numbers confirms this. The Average money manager is not only fully long, but employing leverage! This is the highest average ever recorded!

    (click to enlarge)

    Several other things pop out:

    1) The MOST BEARISH person to respond is 60% long stocks! That's the most bearish guy? That's another new record! The next largest long position held by the most bearish respondent was in 2007 at 50%.

    2) The lowest quartile is 85% long stocks. There was only one other instance that this was higher! (87%)

    Honestly, this kind of made my jaw drop when I looked over this so I wanted to get it out there as soon as possible. You know what they say about a crowded trade.... This looks about as crowded as it gets.

    Disclosure: I am short SPY.

    Tags: SPY, QQQ, DIA, IWM, FXE
    Jan 31 2:56 PM | Link | 6 Comments
  • Tuesday, January 29, 2013 - Short Sentiment Update

    I didn't do a sentiment review last weekend so I decided to quickly include the updated charts here:

    The Put/Call Ratio ($CPC):

    (click to enlarge)

    Notes: The put call ratio has crept up a bit, but still has a call side bias. The related VIX also remains historically very, very low.

    Weekly Blogger Sentiment:

    To quote Ticker Sense directly, "The Ticker Sense Blogger Sentiment Poll is a survey of the web's most prominent investment bloggers, asking "What is your outlook on the S&P 500 for the next 30 days?" Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers -- a community that continues to grow as a valued source of investment insight."

    (click to enlarge)

    Notes: Like the put/call ratio blogger sentiment has turned lower, though just slightly and remains elevated.

    Investors Intelligence:

    Notes: The percentage of bulls remains as high as it's been in the last few years. The bull bear spread also remains large. This is updated on Wednesday morning, so we'll see tomorrow if this remains elevated.

    The American Association of Individual Investors (AAII):

    Raw Numbers:

    (click to enlarge)

    Bulls - Bears:

    (click to enlarge)
    Notes: Individuals have been one of the lagging groups of investors. They've really taken it on the chin the last several years and have been reluctant to hope on board rallies. Unfortunately, all this has done is make them jump on board later into the rallies, actually increasing the odds that buy the top tick.

    National Association of Active Investment Managers (NAAIM):

    (click to enlarge)

    Notes: Money managers continue to hold one of the largest long positions in recent memory.

    -Bill L

    Tags: SPY, DIA, QQQ, IWM, XLF
    Jan 29 2:53 PM | Link | 1 Comment
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