The Bigger Sentiment Picture

I wanted to take a step back today and look at intermediate term sentiment. Unless there is a major economic event most large moves lower tend to occur from a state of extreme intermediate term sentiment.

The Investors Intelligence survey is an excellent intermediate term sentiment indicator. Below is  a graph from Bespoke Investment Group, with my labels, showing the level of bears on the Investors Intelligence survey. The danger zone seems to be when the bears are below 20%. We are not quite there yet. As an aside please note the high level of bears we saw in late August right before this rally kicked off.

The next chart I want to look at is the Rydex Total Bull/Bear assets below from SentimenTrader.com. We are nowhere near the upper band but I would note that pre-2009 the current level was considered pretty extreme. This indicator is inconclusive. I would once again point out that at the kick off to the current rally at the end of August we were sitting at the lower band.
The next chart is the 30 day moving of the CBOE Put Call Ratio. As you can see below there is little amiguity to this chart. It is not at levels seen at previous tops.
The 10 day moving average of the ISE Equity put/call ratio shown below tells a different story and is consistent with other intermediate term tops. Please note: The label October 08 High should read October 2009 High.


Overall what we are seeing is that sentiment is not quite at an extreme in the intermediate term. That does not mean we should not see corrections. But it does mean that it is unlikely we see a move lower similar to the one in April, short of a systematic event.

1 comment:

Anonymous said...

Good stuff.

QE2 and elections are Big Stuff. Get ready.