Posts filed under “Sentiment”
What do you get when you cross an overbought market with too few bears? Often, that combination of complacency leads to a correction. So far, all it has produced is a lot of frustrated contrarian traders.
Stephen Suttmeier, technical strategist at Merrill Lynch, put the situation into broader context in his monthly chart book over the weekend:
As of October 25, Investors Intelligence (II) % Bears extended deeper into contrarian bearish territory below the 20% level with a reading of 16.5% … down from 18.5% the prior week and the lowest level for II % Bears since April 2011 – this suggests too few bears among newsletter writers … However, given the strong trend for the equity market as well as bullish volume (VIM & VIGOR), market breadth, weekly momentum and seasonals, we favor a rally into year end and expect pullbacks to be limited.
I spoke with Merrill’s MacNeil Curry this morning. He noted that while there may be too few bears, sentiment is but one factor in the overall market equation. The other elements are fairly positive: We are now in the seasonally best half of the year, market trend has been strong, and the momentum and volume have been constructive. Most notably, market breadth — the number of stocks advancing relative to the decliners — is very positive.
Merrill’s technical team is looking to take advantage of any pullback. Today’s red screens just might be the start of that correction. They expect it to be relatively shallow, and would suggest adding to equities to be positioned for an expected year end rally.
You know I love these sorts of things: Dr. Ed Yardeni has a nice set of monster sentiment charts posted at his site. The link is Stock Market Indicators: Fundamental, Sentiment,. & Technical and its 20 pages of fun. courtesy of Yardeni Research, Inc. September 17, 2013.
Click for ginormous chart Source: Merrill Lynch I love the giant chart above using the overlay of the S&P 500 off the 1942, 1974, and 2009 generational lows as a guide. Its beautiful in its simplicity, and has a little something for everyone. The bulls get a chart that is bullish longer-term, the…Read More
Are investors being too complacent? That is the question that an be looked at in several different ways. Some folks rely on anecdotal evidence. Others use the VIX or the Put Call ratio. The St. Louis Fed uses their own metric which they call the “Financial Stress Index” (STLFSI). It combines 18 different weekly data…Read More
Click to enlarge Source: Bloomberg The pushback to yesterday’s chart (Sell Side Indicator: Wall St’s Improving Optimism) was rather fierce. Whether that reflects confirmation bias on the part of under-invested readers is unknown. But to provide equal time and to make sure that I am not engaging in my own confirmation bias, consider the…Read More
Consumer Confidence: A Useful Indicator of . . . the Labor Market? Jason Bram, Robert Rich, and Joshua Abel Liberty Street Economics Consumer confidence is closely monitored by policymakers and commentators because of the presumed insight it can offer into the outlook for consumer spending and thus the economy in general. Yet there’s…Read More
Click to enlarge Source: Merrill Lynch/BoA This is an interesting chart: Improving Wall Street sentiment is still no where near the levels associated with excessive sentiment. Despite the ongoing rally — or perhaps because of it — we are now all the back to the levels enjoyed at the lows in March 2009. Merrill notes…Read More