Sentiment Report - March 22, 2012

Posted 03/22/12 7:00 PM ET by Jason Goepfert           Archive





Smart / Dumb Money Confidence  


1  The S&P is on track to suffer its worst week in more than 3 months, which isn't too hard given that its previous worst loss was only -0.6%.  This kind of steady price rise on a weekly time frame has led to impressive results in the intermediate- to long-term.


2  The Total Put/Call Ratio jumped to its most-extreme level since mid-December.  Of the 6 other times since then that it was about this extreme, the S&P 500 was higher 2 days later every time.  It didn't lose more than -0.8% at any point in that span...suggesting that if we do slide more than than in the coming day(s), it's a sign that the relentless uptrend may be switching to something more halting.


3  Selling among corporate insiders remained fairly heavy.  The Buy/Sell Ratio has been below -1 for the past 7 weeks.  The only other such streaks since 2003 ended in early December 2006, mid-May 2008 and the end of December 2010.  The first and last of those saw equities rise for another 4-6 months before topping out.



The Smart Money is 38% confident in a rally.

The Dumb Money is 63% 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:  7     




Bottom Line

Navigating the markets is rarely easy, but it's times like this where it seems especially difficult.  We have very compelling momentum studies suggesting higher prices, or very minimal declines at worst.  But much of the sentiment work is suggesting limited upside at best.  The default position in these instances is to look for a choppy market until one side appears to get an upper hand.  Fading overbought/oversold extremes on a short-term time frame should work better than it has over the past couple of months...we just don't have many of those extremes right now (on a shorter-term time frame).


Bottom Line

As has been the case for most of the past couple of months, we're in a very difficult place right now, due to competing suggestions from momentum and sentiment.  We've looked at a couple of momentum studies that strongly suggest only mild weakness at worst in the intermediate- to long-term.  But when we see as wide a spread between the Smart/Dumb Money Confidence as we have recently, in the past 20 years stocks have never been able to enjoy an uninterrupted uptrend.  Best bet given those competing interests is a choppy market where fading shorter-term overbought/oversold conditions should work well.


Today's Studies & Updates

Weekly Price Persistency Bodes Well


If the S&P 500 closes on Friday where it closed on Thursday, then it will have lost about -0.8% for the week.  Remarkably, that would be its worst week in more than three months.


Since mid-December, the S&P has only suffered two negative weeks, both smaller than -0.7%.  The last five weeks have all been positive.


Let's go back to 1928 and look for any other time the index suffered its first down week after at least 5 up weeks, and with no weekly losses greater than -1% during the past three months.


Like we saw with the Bollinger Bands, this kind of price persistency is a consistently positive intermediate- to long-term sign.  The "sweet spot" for this one was six months later, as the S&P was positive 12 out of 13 times, with an average return that was more than double a random six-month return.


The lone loss, in 1966, was a bad one.  By the time the S&P hit this kind of streak, it was ready to top out and the index immediately fell into a nine-month spiral.


Even including that failure, the S&P's maximum loss at its worst point during the next six months averaged only -2.0%, less than half a random six-month stretch.  Only 1 out of the 13 lost more than -4% during its worst point.


The maximum gain during the next half-year averaged +10.7%, which is only a bit better than random, but still it's 5 times better than the average loss.  Notably, 12 out of the 13 gained more than +5% at some point.



Click charts for larger view




Active Studies & Updates                                                                     See expired studies


Bearish for equities 



Bullish for equities 

Date Description Priority   Date Description Priority
03/01 An extended trend Medium   03/19 5 closes above Bollinger Band Medium
02/27 McClellan Oscillator divergence High   12/09 4th quarter gain of +10% Medium
02/17 "Black swan" indicators rise Medium   11/11 3 months of large unfilled gaps Medium
02/06 Surge in junk debt issuance 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        
01/10 OEX vs. equity options Medium        
01/09 Spike in Nasdaq / NYSE Volume Low        
09/02 Low ratio of cash to equities Low        




General Equity Market Indicators                                                    See all equity indicators


Several times since mid-January, we've seen the number of bearish (for the market) indicators jump close to or above 30% of our total indicators.  That's a decent sign of increased risk for a market decline, though in the past that figure has soared above 40% or even higher.  Now that we've finally seen something of a break from the relentless uptrend that started 2012, the Indicators At Extremes is back to giving more normal readings.



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


Indicators At Extremes

* New extreme


Stock And Sector Sentiment                                                        Go to sector breadth charts


For much of the time from mid-January through mid-February, many of the sectors were in overbought territory.  Several of them started to slip, reflecting the poor breadth that accompanied the latest push to new highs in the broader equity indexes.  Now that "the market" has taken a breather, we're seeing some of those sectors already starting to head towards oversold.



See this Data Brief for more background on the Sentiment Scores




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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