Sentiment Report - April 2, 2012

Posted 04/02/12 7:00 PM ET by Jason Goepfert           Archive





Smart / Dumb Money Confidence  


1  Wall Street strategists are now recommending considerably less equity market exposure than individual investors are taking.  That's not a major sell signal, but it is a minor negative.


2  This was the 6th time the S&P 500 managed to close at a 52-week high on the 1st trading day of traditionally-positive April.  Each of the other five times, it gained ground over the next 2-4 days, but then struggled 3 of the 5 times.  The years were 1936 (bad), 1943 (bad), 1954 (good), 1998 (mixed-to-bad) and 2010 (good).


3  Retail money market assets as a percentage of the market capitalization of the S&P 500 fell under 5% for the first time in 6 years   The other occurrences since 1982 were April - August 1998, December 1999 - June 2000, December 2004 - March 2005 and August 2005 - June 2006.



The Smart Money is 42% confident in a rally.

The Dumb Money is 58% confident in a rally.


Smart/Dumb Confidence

 (click chart for larger version)


Quick Links

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

For reasons discussed last week, we're looking for a choppier market than we've seen for the past two months.  We got some barely-there short-term oversold conditions last week and have rallied as usual, so the big test of the "choppy market" theory will be when we hit overbought again.  We're not there yet.


Bottom Line (Last changed 3/22)

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

Wall Street "Nay", Main Street "Yay!"


A little over a month ago, we took a look at Wall Street strategists' recommended allocation to equities, which was dropping despite a rallying stock market.


It has dropped even further.


The latest update according to Bloomberg shows that strategists recommend an investor hold only 55.3% of their portfolio in equities.  Since 1998, the only time they recommended less exposure to stocks was from January - August 2009 (which turned out to be a very poor time to have low long-term exposure).


At the same time, individual investors are picking up the amount of their portfolios they hold in stocks, according to AAII.  In March it rose to 60.7% of their total portfolio.  That's not extremely high, but it's up from 52% a few months ago.


So currently, Wall Street strategists are recommending that investors hold 55% of their portfolios in stocks, but according to AAII some of those investors are actually holding more than 60%.


That's a "Wall Street minus Main Street" difference of -5%.


The widest negative difference was -9% in early May 2006.  That didn't lead to any kind of market disaster, though stocks did struggle for the next month.


The only other times the spread got to -5% or worse were in early 2005 and July 2007.  The 2005 occurrence again didn't lead to anything worse than a choppy market while the 2007 occurrence...did.


As for the opposite extreme, when Wall Street was +5% to +10% or more bullish than Main Street, stocks did well, especially long-term.  There were 81 weeks when the spread was +10% or more, and the S&P was higher a year later 91% of the time, averaging +19.0%.


The current spread is probably a minor cause for intermediate- to long-term concern for stock investors, but as usual this is a better "buy" indicator than "sell".  If we get to a time when the spread is +5% or more, then it'll be a good time to sit up and take notice.


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   03/22 Weekly price persistency Medium
02/27 McClellan Oscillator divergence High   03/19 5 closes above Bollinger Band 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        
01/10 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


Prior to the last year, we saw the percentage of bearish (for the market) indicators reach 40% several times.  In the past year, it hasn't gotten much higher than 30%, each time coinciding with a period when equities were about to flatten out for 1-3 weeks.  We saw that again on March 20th as that percentage reached 29% and stocks have consequently backed off a bit.



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


With the latest push to new highs in the broader equity averages, breadth has been somewhat poor, which means that not many sectors have seen big pushes in stocks above their intermediate-term moving averages.  Financials have been the most overbought sector, with most of the others hovering right around neutral.  Not much of an overall theme.



See this Data Brief for more background on the Sentiment Scores




Currency / Commodity Sentiment                                See all currency/commodity indicators


The correction in gold has been accompanied by a quick change in sentiment.  Newsletter writers were recommending a large net short position for one of the few times in the past 10 years, and speculators have started to really reduce their long positions.  Energy remains speculators' main focus, with positions in crude oil, heating oil and unleaded gas hovering near multi-year or all-time record highs.






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