Sentiment Report - March 1, 2012

Posted 03/01/12 7:15 PM ET by Jason Goepfert                Archive





Smart / Dumb Money Confidence     


1  The S&P has nearly gone 50 days without closing below its 20-day average, and 35 positive closes out of those 50 days.  Those are similar 3 other periods since the bear market low.


2  Individual investors upped their bond exposure in February to one of the highest levels on record.  It has not been an effective indicator for bond prices, but the S&P 500 was higher 10 out of 11 times 3, 6 and 12 months after a bond allocation above 22.5%.


3  Weekly sentiment among individual investors, active investment managers and corporate insiders was essentially unchanged this week from last week.


The Smart Money is 38% confident in a rally.

The Dumb Money is 67% confident in a rally.


Smart/Dumb Confidence

 (click chart for larger version)


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Risk Summary  |  Today's Updates  Equity Indicators

Stocks and Sectors  |  Commodities  |  Comments 


Risk Summary


Short-term Risk Level:  5     




Intermediate-term Risk Level:  8     




Bottom Line

Buyers continue to buy every tiny dip in the market, taking us on one of the most persistent streaks of the bull market.  The other 3 times we've seen this long of a trend since 2009, it was about to end.  There are other risks as well (see the Active Studies below).  But again, given the bucking off of so many formerly reliable patterns, we wouldn't bet on an imminent decline as long as the S&P levitates above 1350ish.


Bottom Line

For weeks, there has been no change here...stocks have been driven by impressive momentum, and recently we've discussed that such streaks usually bode well long-term.  More immediately, though, disturbing extremes in sentiment and a major reversal in the market's premier stock, Apple, bode ill.  Risk is high for a looming correction, most likely 2-4 weeks and 3%-8% in duration.

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Today's Studies & Updates



A Remarkable Run


From a number of different perspectives, the market environment we're in now is remarkable.


At various points in the past six weeks, the broader market has shrugged off bouts of extreme sentiment, negative seasonality, egregiously negative breadth divergences and a host of negative price patterns.


This stretch is similar to several others we've seen since the 2009 bear market low.


If we levitate again tomorrow, then the S&P 500 will have enjoyed 50 consecutive days without closing below its 20-day moving average.

  • In April 2010 the streak lasted 49 days.

  • In November 2010 the streak lasted 52 days.

  • In January/February 2011 the streak lasted 40 days, but there was only 1 close below the 20-day.  Ignoring that, the streak lasted 57 days.

So we're bumping up against the max number of days buyers were able to sustain the streak.


In addition, as of Tuesday the S&P had managed to eek out 35 positive closes during the past 50 days.  The index also reached 35 positive out of 50 trading days on 01/11/10, 4/19/10 and 2/10/11, indicated by the red arrows in the chart to the right.


The last two also coincided with long streaks above the 20-day average as noted above.  All three of them saw the market top out almost immediately.




Click chart for larger view


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Active Studies & Updates

See expired studies


Bearish for equities 


Bullish for equities 

Date Description Priority   Date Description Priority
02/27 McClellan Oscillator divergence High   12/23 Multiple follow-through days Medium
02/17 "Black swan" indicators rise Medium   12/09 4th quarter gain of +10% Medium
02/06 Surge in junk debt issuance Medium   11/11 3 months of large unfilled gaps Medium
02/03 Equity Hedging Index gets extreme Medium        
01/31 Extremely low inverse ETF volume Medium        
01/25 Rydex traders exit cash, enter leverage Medium        
01/25 Odd Lot buyers pull back Low        
01/19 Liquidity Premiums hit an extreme Medium        
01/10 OEX vs. equity options Medium        
01/09 Spike in Nasdaq / NYSE Volume Low        
09/02 Low ratio of cash to equities Low        


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General Equity Market Indicators

See all equity indicators


With very few of our indicators at a bullish (for the market) extreme, even none of them at some points, when we see the percentage of bearish indicators go over 30% of the total, it tends to precede market pullbacks.  That happened on January 20th and again February 3rd, but so far stocks have reacted much.  A couple of times in 2010, we saw the bearish indicators jump above 40% before a correction set in, so that's a possibility here, but we would still consider risk to be fairly high.



More history:    Short-term Score      Long-term Score     Indicators At Extremes


Indicators At Extremes

* New extreme

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Stock And Sector Sentiment

Go to sector breadth charts


The rally over the past several weeks has been concentrated in some of the more speculative sectors, such as Financials, Technology and Housing, while defensive sectors like consumer staples and Utilities haven't participated as much.  This isn't necessarily a bag thing, but when those speculative sectors get so overbought, the broader market generally takes a multi-week breather, or at the least price gains tend to moderate and flatten out.



See this Data Brief for more background on the Sentiment Scores


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Currency / Commodity Sentiment

See all currency/commodity indicators


With the correction from extremes in many currencies over the past couple of weeks, sentiment towards the US Dollar has become less enthusiastic, which is normal.  Traders have moved more into the Aussie Dollar.  We're also seeing some extremes in the energy contracts, particularly Unleaded Gas and Heating Oil.




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Member Comments


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