Institutional Sentiment & Analysis Weekly 09/16/06
Published Saturday 9/16/2006
By Mark Young of Equity Guardian Group

Short-Term Sentiment:
Positive.

Overall Intermediate-Term Sentiment: Positive.

Individual Investor Sentiment: Positive

Small Speculator Sentiment: Positive

Hedge Fund/Small Manager Sentiment: Very Positive

Longer-term Trend:
Positive.

Intermediate-term Trend:
Positive.

Short-term (one-day) Signal:
None.

We are trading these signals intra-day with KTT subscribers on Yahoo IM--contact us for details.

Ideal ETF Portfolio (tracking portfolio):

25% SPY at 125.20

Sold the Q's at 39.98 (from 36.70) and sold 25% SPY at 132.25 (from 129.5). We'll be buying back shortly, unless we get a shift in sentiment.

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Results of the Wall Street Sentiment Survey (formerly known as the Fearless Forecaster Sentiment) taken after the close on 9/15/06

Response was to this question: "At the end of next week will the S & P 500 close up (bull), down (bear), or unchanged/no opinion (neutral)?"

Weekly BULLS: 0%
Weekly BEARS: 76%

Our `Smart Money' Pollees are 0% Bullish and 67% Bearish.

Our Amateur Trader Pollees are 0% Bullish and 100% Bearish.

The Senticator is Bullish.

Last week, I said that it would make more sense to rally into expiration and that long was the way to lean. My call is for a rally into Wednesday, and sloppy sideways action into Friday. We rallied smartly into Wednesday, and chopped into Friday. Basically we were just a bit stronger than I thought on Friday, but we pulled back and all in all, the SPX was just a $1 or so higher than on Wednesday's close. I'd say that's sideways. I think we get to take an A+ for that call.

The Mechanical model went long at 129.86. The Subjective Model went long 1/2 at the same level.
Both sold at 131.69 for a decent gain.

Proprietary Surveys
This week, the WSS Surveyees are heavily Bearish on lower than normal participation, and again the "Smart Money" guys are leaning Bearish. Our survey of "amateur" (more emotional) traders is showing nothing but Bears, but participation here was way down too. The Senticator is Bullish. We still see a ton of Bearishness in a strong and rising market, with a Bullish Senticator, so that implies higher prices. That said, historically when the Surveyees are leaning very heavily to one side or the other, we used to get a move in that direction for a couple days and then a reversal. That would mean a decline on Monday and/or Tuesday and then a resumption of the rally. That could happen, to be sure. No matter what, longer term, this data is Bullish.

Message Board Sentiment
The message board sentiment poll shows Bulls at 25% and Bears at 54%. This is technically Bearish, since these guys tend to be right a bit more often than not but this is still not many Bulls and a whole lot of Bears. Participation was about normal. The Actual Position Poll has 25% at least partially long, and 54% at least partially short. There are 41.67% fully short Bears. This is way, WAY above my 20% fully short threshold, which is quite Bullish. I just can't believe that folks are still so confidently Bearish. This is nuts. I can understand probing for a top, but so many are fully short, day after day. I've been expecting a pullback soon, but we may have to re-evaluate this stance. This is just WAY too much company. The only hope the Bears have is that this sentiment we switch Bullish on a little pullback. Of course, we have to get one.

One of our readers did a study and posted it on Traders-talk.com. The two charts should give you a feel for accumulated pessimism that we're talking about.
http://www.traders-talk.com/mb2/index.php?showtopic=59154

Check out www.traders-talk.com for early updates of the sentiment polls.

Our T-4 Turn Indicator is currently neutral but activity levels are still high.

Options Sentiment
Daily P/C ratio: 0.82. Neutral.
10-day P/C ratio: 0.97. Constructive.
Equity P/C ratio: 0.56. Neutral.
OEX PC ratio: 1.16. Neutral.
OEX 10-day PC ratio: 1.34. Improving dramatically.
OEX $-weighted* P/C ratio: 0.43. Sell.
QQQQ $-weighted* P/C ratio: 106. Neutral.
ISEE Sentiment Index: 70. Buy, but recently Buy signals have been good sells. The 10-day is very low which is Bullish. See Chart.

The data are mixed and they tend to be at expiration. The very low ISEE 10-day reading is supportive and while this isn't a pin-point signal, it's pretty Bullish. The low OEX $-weighted P/C ratio is a worry, but not enough by itself, especially on expiration. Besides, we suspect a data glitch.

The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is too optimistic, under 100 too pessimistic. I've loosened that a bit in recent months.
*$-weighted data courtesy of Hamzei Analytics. Readings over 2.0 are Bullish and near 0.5 are Bearish.

General Public Polls
Last week, AAII reported 47.95% (vs. 42.99%) Bulls and 38.36% (vs. 29.91%) Bears. We got an increase in both Bullishness and Bearishness. Folks seem to be mighty willing to get Beared up, even as the market rallies. Bearishness is at levels that support rallies not tops and Bullishness isn't near top levels. We're coming out of 14 weeks in the Buy zone and that will probably support some more strength for a while. Investors Intelligence reported Bulls at 45.8% vs. 43.2%, and Bears at 35.40% vs. 33.7%. This is another increase in Bullishness and an increase in Bearishness. This sentiment sector also shows plenty of top picking. We're a long way from a Sell from this indicator. LowRisk reported 29% Bullish vs. 27% Bullish the previous week, and 44% Bearish vs. 48% Bearish the previous week. This is showing a bit less Bearishness, but not much. This is pretty bearish, even given the little decline we had last week. This is quite Bullish for the market, still.

Rydex Sentiment
The Rydex Dynamic Bull funds had $6MM of inflows, while the Dynamic Bear Funds had outflows of $31MM. The overall fund shifts were rather mixed. There was $27MM in Bearish non-Dynamic asset shifts. The RSO showed a tiny Bullish asset shift on an up day. That's constructive, but it's not a Buy. Thus far, it looks like our Reversal Theory Sell is wrong and we're not seeing much sign of acceptance. Still, with op-ex out of the way, there may be a little selling and profit taking that can pull the market back. I'd just not get too excited by the prospect...we may not get anything but more rally. If you want to short for this pig, use some patience. We still have plenty of Bearish company. On an ongoing basis, the Rydex Bear funds have pulled in a ton of cumulative assets even as overall assets at Rydex have declined. That's Bullish long term.

Conclusion
Last week, I was looking for a rally into some sort of tradable top, but I wasn't looking for much weakness. I was hoping that any rally that we got would be enough to ameliorate the excessive Bearishness. It didn't. As we can see from the public polls, there are some more Bulls, but the Bears ranks are not only stubborn, but growing. Our message board polls are showing excessive levels of short bears and they have been for some time. The WSS Survey shows NO Bulls. None. Sure, we're over done and could use a pullback but it's going to be VERY difficult to take this market down much. It's important to realize that with each passing day we have fewer and fewer stocks to invest in, between buy backs and take overs and a thin new issue calendar there's not much play for new equity money to go at current prices. Should all the Bears decide to cover or go long, things could get very interesting on the upside. So, how do we pay this? Try to be long and add on weakness, if we ever get it. This week, I'm going to try to allow for a pullback, which is what last weeks even split of WSS Surveyees would imply, but with all the Bears, I'm going to suggest that we head higher first. My call for the week is up into Tuesday, and down into Thursday, then back up next Friday. Be alert for one of those sharp reversals on Tuesday, as well. You know what they look like...down hard and then suddenly back into the green at the close leaving the Bears still short and wondering what happened.

We don't have a ST Sentiment signal but there's some reason to look higher. Since we've been publishing our ST Sentiment Signals, we've had 32 trades and 24 winners. We're keeping losses small and have consistently nailed down winners quickly If you are interested in our ST Sentiment Signals and would like to receive these day trades and instructions via both email and Yahoo Instant Messenger (with specific trade set ups, ongoing entry, stop, and exit points), please contact us with your yahoo ID. There is a $39.99/month surcharge for this service.

The Mechanical model will go long at the open. The Subjective Model go long 1/2 and add on any weakness.

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Ideal ETF Portfolio (tracking portfolio):

25% SPY at 125.20

Sold the Q's at 39.98 (from 36.70) and sold 25% SPY at 132.25 (from 129.5). We'll be buying back shortly, unless we get a shift in sentiment.

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Past performance is no guarantee of future returns. All information included in this missive is derived from sources we believe to be reliable, but no guarantee can be made to that effect. None of the forgoing should be construed as an offer or solicitation to buy or sell any security. The publisher may have a long or short position in the funds or securities discussed at any given time. We aren't your advisor, unless you have a signed contract with us. Please review any trade that you do with your trusted advisor FIRST.

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Wallstreetsentiment.com

Mark Young
Editor

See the link below for a historical chart of Fearless Forecaster sentiment.

ABOUT SENTIMENT AND ANALYSIS

The Fearless Forecaster Sentiment Poll is taken each Friday from a generally static pool of experienced technical analysts (both private and professional). The Fearless Forecaster Sentiment is not normally a good fade, though there are times when it can be.

The Fearless Forecaster sentiment data is useful on the short term; the Fearless Forecasters tend to be right. Typically they are right sooner rather than later, if there's a large plurality. On the flip side of the equation, if 90% or more are Bullish or Bearish, the odds of them being right over the very short term are huge, but the odds of a major turn (in the opposite direction) soon thereafter are also quite good.

We have also found that when the Fearless Forecasters are evenly split, look for a BIG move in either direction, but usually down.

Over the years, we have found a number of other tools to help in evaluating the Fearless Forecaster Sentiment. We publish this in our weekly "Institutional Sentiment & Analysis" (a part of our institutional research). These additional tools are our "Smart Money" poll, and our Senticator. Both are proprietary polls run by us.

We have found that the Senticator tends to be right by the end of the week (as much as 82.7% of the time), though it tends to be more accurate in a rising market than a falling one.

The "Smart Money" pollees are very useful when there is divergent opinion. It's generally NOT a good idea to fade the "Smart Money" unless "'EVERYONE'" (all sentiment measures) is in agreement. When in doubt about the meaning of the Fearless Forecaster Sentiment Poll, defer to the "Smart Money" poll. The "Smart Money" guys are folks with whom I've worked or whom I've watched for YEARS. They all have different approaches and they're all VERY good (not infallible, just good analysts/traders).

Subscriptions to Institutional Sentiment and Analysis are $99 per year. This also includes special sentiment updates and reports. Our polls are unique and insightful, and our analysis is some of the most accurate on the Street.

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