Posts filed under “Quantitative”
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
Individual Investors Are Not Buying It
Sentiment Trader, April 11, 2013
“He can take a model and turn it into a narrative” Right after the election, Felix wrote a post “When quants tell stories.” Clever as it was, I had issues with the underlying premise – namely, that the value of Nate Silver’s modeling lay more in the narrative tale as told by Silver…Read More
Cyclically Adjusted P/E Click to enlarge: Meb Faber of Cambria Investment Management looks at 10 years of earnings. Based on a methodology developed by Yale University Professor Robert J. Shiller, Faber concluded from an analysis of cyclically adjusted price-earnings ratios, designed to minimize the effect of economic swings on profits. Cyclically adjusted P/E, also known as CAPE,…Read More
Over the last few weeks, we have discussed the questionable data and mediocre results of Jeremy Siegel’s Stocks for the Long Run (See this, this and this). When we step back and take a look at The Really Long Run, we see a much clearer picture. The deep historical perspective as it pertains to the…Read More
Click to enlarge: Bloomberg Echoes looks at the history of computer driven snafus: When machines replace seasoned traders and market makers, mistakes can occur at dizzying speed. It happened with the notorious “flash crash” on May 6, 2010, and again on Aug. 1 this year, when software at Knight Capital Group Inc. (KCG) malfunctioned,…Read More
Must read article in Spetember edition of Wired Magazine on How Wall Street Got Addicted to HFT. In light of the JKnight Trading snafu, Wired decided to post it on line earlier than suual. Here is an excerpt: “Faster and faster turn the wheels of finance, increasing the risk that they will spin out…Read More
Whenever I have no idea about some event, rather than hypothesize some half-assed theory, I prefer instead to go to the pros who know their area of expertise better Thus, for the the Knight Trading glitch, I direct your attention to Nanex: Knightmare on Wall Street On August 1, 2012, starting at market open (9:30 EDT), our…Read More
No sooner does this morning’s “Uncertainty” piece go up when someone emails me this “quantified” version of uncertainty. The claim is made that “Nick Bloom and Scott Baker of Stanford University and Steve Davis of the University of Chicago” have figured out how to measure uncertainty: Sadly, no. This is merely an index…Read More
What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god! the beauty of the world, the paragon of animals—and yet, to me, what is this quintessence of dust? Man…Read More