Why So Bearish

Just a couple of weeks ago, these market timers were on average recommending that their clients allocate 80% of their Nasdaq-oriented portfolios to stocks. That was the highest level for this average since 2000, and was a contrarian warning signal that trouble laid directly ahead.
Today, in contrast, the comparable average recommended exposure level is minus 45% (as measured by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI). This negative level for the HNNSI means that these market timers on average are recommending that their clients allocate nearly half their Nasdaq-oriented portfolios to going short -- an aggressive bet that the market will continue declining.
-Mark Hulbert, Marketwatch
Market timers are uber bearish as seen in the above article. As an aside, I have been hearing recommendations to buy SDS left and right recently.  I thought these leveraged ETFs were put to bed already after the losses they inflicted.


PJ said...

On the other hand, I've been surprised by how many bears went bullish for a trade early this week. Tim Knight this morning called himself a "bulltard." Call buying suggests he's not alone.

I'm still planning to put some shorts back on tomorrow if we get a bounce, as I expect. I don't think a bounce will last long. I might cover some shorts Friday at the close, if there's selling before the long weekend.

Tsachy Mishal said...

The vast majority of the evidence points to excess bearishness. I always prefer a 10 day moving average of the put/call ratios.

PJ said...

I agree ... but I balance the 10-day oversold condition against excessive valuations and the need for European banks to delever as their funding costs increase.

The call buying, and Tim Knight & others, indicates there's some short-term speculative buying with tight stops and low commitment that can easily reverse.

I only do short-term trades when the stars align. I'm not sure they're adequately aligned. The Jan-Feb decline ended with heavy put buying and the put buying continued for 2 weeks after the market started rising. This time the market has continued down while the options buyers have switched gears.

It's the opposite signal -- going down despite call buying today, vs going up despite put buying then. I liked that earlier signal better.

I'm so bearish long-term that I don't dare miss my move. Up moves will be retraced, down moves won't. So I don't mind sitting through an up move, but I don't want to miss a down move.

PJ said...

I'm happy. Looks like I'll be able to put back on the remainder of my shorts at better prices than I covered last Thursday. I also got good prices on Monday morning.