Posts filed under “Contrary Indicators”

Putting Investor Bearish Sentiment into Context

Individual Investors Are Not Buying It
Click to enlarge


Lots of people have been discussing how negative investor sentiment is, showing the chart above. It shows markets making new all time highs as expectations that markets will be higher six months hence is at a mere 19% of AAII respondents. (See Individual Investors Are An Emotional Wreck And It Is Astonishingly Bullish, Investors are Liars, and AAII: Cash Allocations at a 16-Month High).

Jason Goepfert at Sentiment Trader notes that “Individual Investors Are Not Buying It.”

“If the numbers stand, then we’re seeing a remarkable exit from public markets among individuals . . . The latest weekly survey of expectations for the stock market showed that only 19% of respondents expected the market to head higher over the next six months. That’s the lowest reading since near the bottom of the bear market in 2009.

Investors’ skepticism in the face of new highs proved to be a decent sign going forward, especially in the shorter-term of 1-2 weeks. That’s when the S&P’s out-performance after any other 3-month high was the greatest. After that, it evened out and fell more in line with a random return.”

Let’s put this into a more quantitative context than the pure, “too bearish” framework.

In the table above, Jason put the too bearish meme into the richer context of what occurred in the past when markets hit 3 month high (as they have been doing) and at the same time saw sentiment all to 3 month lows.

The results were impressive: Positive 87% of the time, with median gains of 11.2%.

My explanation: Investors being this negative at the same time as markets hitting all time highs suggest to me that they are under-invested in equities and are frustrated they have missed the run up. The past history shown by Goepfert also suggests they will eventually acquiesce, and join the long side.

If you want to use sentiment as Contrary Indicator, that capitulation will set up your top and reversal. We are not, however, anywhere close to that point.


click for larger table

Source: SentimenTrader



Individual Investors Are Not Buying It
Jason Goepfert
Sentiment Trader, April 11, 2013

Category: Contrary Indicators, Investing, Quantitative, Sentiment

Sell Side Consensus Indicator Still Extremely Bearish

Click to enlarge Source Merrill Lynch     I’ve shown this chart several times over the past year, but its worth repeating: The Street remains very bearish by historical standards. Note this is not at all a short term indicator; and does operate with a bit of a lag.     Previously: Strategists Most Bearish…Read More

Category: Contrary Indicators, Sentiment

Rug to be pulled out from under the short bonds trade ?

In certain aggressive managed accounts, we have been nibbling on some TBT, the inverse 20 year treasury ETF. Data such as the AAII Asset Allocation Survey show investors are very overweight bonds relative to their 27 year mean.  Additionally, the multi-decade drop in interest rates suggests we are likely at a secular low, and ready to…Read More

Category: Contrary Indicators, Fixed Income/Interest Rates, Think Tank

How Cheap Are Equities ?

Source: Société Générale



To answer that question, look at the chart above, courtesy of Société Générale’s Albert Edwards, who asks the question “Are equities really “unambiguously cheap”?“. (Cyclical Earnings charts after the jump).

Shiller’s CAPE chart shows that while US equities are fairly reasonably priced, they are not, to use Edwards term, ““unambiguously cheap”.” But for about a week in March of 2009, they were, but if you blinked you may have missed it.

Europe, on the other hand, appears to be appreciably cheaper than US equities. (Funny how recessions tend to do that). We have about a 16% European weighting, primarily through ETFs like GAL and DVYE.

Regardless, contrarians may wish to take note of this from a valuation perspective.



Are equities really “unambiguously cheap”?
Albert Edwards, Global Strategy Weekly
Société Générale, February 14, 2013


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Category: Contrary Indicators, Earnings, Investing, Valuation

Economists: Don’t Buy Bonds (so you should buy bonds)

click for larger table Source: Bianco Research   Fancy yourself a contrarian? The crowd hates bonds. How about you . . .  ?   ~~~~   UPDATE February 6, 2013 8:11pm I am not suggesting backing up the truck with 10 years, I was trying to make a snarky point about crowd opinion.  I guess…Read More

Category: Contrary Indicators, Fixed Income/Interest Rates

Wall St. Feeling Better but Far from Bullish

  I have shown this graphic repeatedly in the past, but given today’s rally, we might as well trot it out one more time: The Sell Side Indicator — Merrill’s measure of Wall Street’s bullishness on stocks — rose by 2.8pt in January to 49.8. This is now an eight month high and the fifth…Read More

Category: Analysts, Contrary Indicators, Investing, Psychology

Uh-Oh: NYT’s Front Page Cover Indicator

“Americans seem to be falling in love with stocks again.”   That is the first sentence of a front page NYTimes article, titled As Worries Ebb, Small Investors Propel Markets. The rest of the article is just as bullish: “Millions of people all but abandoned the market after the 2008 financial crisis, but now individual…Read More

Category: Contrary Indicators, Investing, Psychology

S&P500 vs 3 Month Lows; 90% Up Days

Interesting data point from Jason Goephert, Sentiment Trader: There have been 9 other times the S&P 500 tracking fund, SPY, hit a three-month low, then the next day opened for trading at least +0.5% above the previous day’s high and closed at least +0.5% above the open.  7 of the 9 led to gains over…Read More

Category: Contrary Indicators, Markets, Technical Analysis

Are FINRA Arbitration Filings a Contrary Indicator?

Warning! Finra Arbitration Filings Down, S&P 500 Up     Jack Duval of Original forensic analysis + visualization points out the inverse correlation between FINRA arbitrations and market peaks: “[Above] is a visualization of annual Finra Arbitration Filings as compared to the S&P 500 annual closing value. Since 1999, there is a significant negative correlation…Read More

Category: Contrary Indicators, Legal

Ritholtz’s Rules of Investing (part I)

Each year on the Big Picture, the blog I call home, I update my top trading rules and aphorisms. It’s a collection I have gathered over the years of my favorite trader, analyst, economist and investor viewpoints on what — and what not — to do when it comes to investing in the capital markets….Read More

Category: Apprenticed Investor, Contrary Indicators, Psychology