Institutional Sentiment & Analysis Weekend
Report
For the week of July 31, 2006 - August 4, 2006
By Mark Young of Equity Guardian Group, LLC.
Investment Management & Research
EquityGuardian.com [1]
WallStreetSentiment.com [2]
Published Saturday, July
29th, 2006.
Short-Term Sentiment:Positive.
Intermediate-Term Sentiment: Positive.
Longer-term Trend:Positive.
Intermediate-term Trend: Buy. Confirmed
Short-term (one-day) Signal: Buy. We'll be pretty
careful, though. We are trading these signals intra-day with KTT subscribers on
Yahoo IM--contact us for details.
We are trading these signals intra-day with KTT subscribers on Yahoo IM--contact us
for details by clicking info @
WallStreetSentiment.com [3].
Ideal ETF Portfolio (tracking portfolio):
25% QQQQ at 39.17.
and
25% SPY at 126.75
and
25% SPY at 125.20
and
25% QQQQ at 36.51
Buy 25% SPY at 125.25.
Results of the Wall Street Sentiment Survey
(formerly known as the Fearless Forecaster Sentiment) taken after the close on 7/28/06
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: 32%
Weekly BEARS: 37%
Our `Smart Money' Pollees are 0% Bullish and 0% Bearish-- i.e. 100% Neutral
Our Amateur Trader Pollees are 25% Bullish and 75% Bearish.
The Senticator is Mildly Bearish.
Last time, I was looking for a decline to test the break
up on Monday, and then a reversal. I didn't think that we'd explode higher, but rather
creep higher in stair-step fashion, with a pullback Wednesday or Thursday. We exploded
higher on Monday (such problems we can live with) then pulled back to test the break up
and then rallied again more modestly on Tuesday, and then pulled back on Thursday and
finished up on Friday. We were too conservative about Monday, but the rest of the week we
pretty much nailed and we got the direction right. I think we can take a B+ for that call.
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The Mechanical model went long at 124.44 and the
Subjective Model was already long 1/2 at 124.05 We blew them all out at 125.98. We were
way too conservative but we banked profits two weeks in a row.
Proprietary Surveys
This week, the WSS Surveyees are nearly evenly split with a slight Bearish lean.
Participation was well down. The "Smart Money" guys are absolutely 100% neutral,
while our survey of "amateur" (more emotional) traders is still very Bearish.
The Senticator, however is flashing a weak Sell. This looks like some of the smarter
traders are loath to chase this market even as the more emotional traders are still Beared
up. The WSS Surveyee tally could easily have come out dead even and that would imply that
we rally into a top of some sort. That sounds pretty reasonable to me, especially given
the other sentiment. First we'll rally to make the amateurs feel wrong, then we'll fall to
make the Senticator right.
Message Board Sentiment
The message board sentiment poll shows Bulls at 47% and Bears at 27%. This is Bullish,
since these guys are right more often than not, but it's pretty excessive. Participation
was about normal. The Actual Position Poll shows 54% at least partially long, and 33% at
least partially short. There are 16.67% fully short Bears. This is below my 20% fully
short threshold. There seem to be an awful lot of long Bulls and that makes me want to be
pretty careful in here. Participation was about normal for Saturday.
Our T4 Turn Indicator is currently neutral, again with elevated readings, but nothing
excessive or indicating a turn. We will be refining this indicator so expect some changes
over the coming days
Options Sentiment
Daily P/C ratio: 0.88. Neutral
10-day P/C ratio: 1.01. Constructive
Equity P/C ratio: 0.58. Neutral
OEX PC ratio: 1.20. Neutral
OEX $-weighted* P/C ratio: 1.19 Neutral and falling
QQQQ $-weighted* P/C ratio: 3.25. Bullish
ISEE Sentiment Index: 97. Bullish
The data are Bullish. The low reading from ISEE is particularly surprising. Then again, so
is the high $-weighted PC ratio from the Q's. There's huge open interest at around 36 and
if I had to guess, that level will not be breached for about 3 weeks.
*$-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 34.88% (vs.
23.85%) Bulls and 43.02% (vs. 57.80%) Bears. This is a solid drop in Bearishness, but it's
also still solidly in Buy territory. That makes for 11 weeks. Last week, we said that
10-weeks in Buy territory was our signal for a low and I called it in. So far, so good. Investors
Intelligence reported Bulls at 42.2%, and Bears at 33.5%. This is a slight
decrease in Bearishness (but not much). This is still constructive. We're not far from a
repeat Buy. So far, it looks like the lows were marked back in June. LowRisk
reported 24% Bulls, vs. 18% last week, and 46% Bears, vs. 54% last week. This is showing a
decent Bullish shift, but it's still showing a lot of Bearishness. This is supportive of
more strength.
Rydex Sentiment
The Rydex Dynamic Bull funds had $8MM of outflows, while the Dynamic Bear Funds had
inflows of $40MM. The overall fund shifts were more mixed, with the non-Dynamic funds
showing the only Bullishness and that not all that much ($38MM). Dynamic funds saw a large
Bearish shift. The RSO showed a modest Bearish asset shift on a solid up day. This is
technically have a Buy, but it's not that high quality due to the divergent shifts. I
strongly believe we'll see the Bearish asset shifts reversed again before we make a
tradable top.
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Conclusion
Last time, we said that there was a huge statistical probability of a nice rally and
the market wasted no time making me look smart. The technicals of this market have
improved markedly. The Cumulative A/D volume finally gave a buy. The Cumulative A/D line
is positive too. The S&P Weekly MACD has given a Buy as well, implying at least a
couple weeks of strength. The AAII sentiment numbers are still in Buy territory and have
been for 11-weeks now.
That is a whole lot of built up Bearishness and it's
going to take a good bit to reverse it. Near term, we're looking at evenly split FF's and
a weak sell from the Senticator. Amateurs seem to be aggressively picking a top, while the
Rydex speculators are doing the same. I think that we'll get a head fake before the rally
before the real pause. My call for the week is up on Monday, modest pullback on Tuesday,
up again into Thursday and then a turn down to consolidate the rally.
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We have an official ST Sentiment Buy signal. Since we've been publishing our ST Sentiment
Signals, we've had 27 trades and 21 winners. We're keeping losses small and have
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The Mechanical model will go short 1/2. The Subjective Model will go 1/2 short on
strength.
Ideal ETF Portfolio (tracking portfolio):
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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 Weekly Report 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. The
ISA Daily Trade Navigator is a daily pre-market service and is available for $39/month or
$399/annually.
Order today by calling 1-800-769-6980 or
order online at WallStreetSentiment.com [4]