Here’s this week’s march through the stock market’s sentiment:
This week’s stock market newsletter editor’s sentiment data gathered and categorized by ChartCraft shows that there is a slight increase in the number of optimistic newsletters. There are 28.4% bulls and 44.3% bears. The bearish side has decreased by slightly more than the bullish side increased.
There are big moves in the retail sentiment data from the weekly American Association of Individual Investors survey. This week we have 45% saying that they are looking for higher prices. That is a +17% point jump from last week. And on the flip side, we have 38% bearish, an equal amount of change (-17% points) the other way around. This is something that I mentioned to watch for as we saw an extreme in this indicator a few weeks ago. The fact that so many have so quickly jumped on the rally bandwagon once again does not bode well.
CBOE Put Call Ratio
The options market is showing a lopsided sentiment with much more calls being traded than puts on the CBOE:
Similarly, the ISE sentiment (measuring call to put ratio among retail option traders) also shows renewed optimism.
Another reason to be concerned for the health of this rally is that we hit the wall for market breadth. On Wednesday, almost every single security in the S&P 500 Index (SPX) was trading above its short term 10 day moving average. This is the highest we’ve seen it for at least 3 years:
9 to 1 Up Days
Similar to the Lowry 90 90 days, Zweig’s concept of 9-1 days is about extremes in market behavior. It is defined as days in which rising stocks on the NYSE are 90% (or more) of the total volume traded. A few years ago, I relied mostly on Martin Zweig’s idea to pin point a great buy opportunity. However, like its cousin, the 90-90 day, this indicator has been running very cold during this bear market.
David Aronson, the author of Evidence Based Technical Analysis measured the efficacy of 9-1 days and has showed that on average, they produce a return of +18% in 2 months. Like all indicators, it isn’t full-proof. In about 20% of the cases the signal fails. And we’ve seen these failures up front and close during this bear market. You can read more in this article by Mark Hulbert.
Hedge Funds Net Long
While individual investors and mutual funds continue to be net sellers of stocks, according to UBS, for the first time since late last year, hedge funds are now net long. Since hedge funds are the most sophisticated market participants, this is a significant positive development. But it could just be a blip on the radar because hedge funds have very short attention spans.
Wall St. Strategists
As a group, Wall Street “strategists” are an amazing fade. Especially if they happen to agree with one another as they do now. Apparently, these same folks, who are paid an exorbitant amount of money, are know of the collective opinion that you should be buying bonds and avoiding stocks. This is reminiscent of the AAII asset allocation extreme that we saw last month.