Market Indicators - Investor Sentiment

» Normxxx - Re: October 28, 2005 Sentiment

Commercial traders in the equity futures have their largest net long position since early March 2000.

The latest release from the Commodity Futures Trading Commission (CFTC) shows that the nominal dollar value of net commercial positions in the S&P 500, Nasdaq 100 and DJIA futures (both full contract and e-mini) reached +$7.5 billion as of last Tuesday, an increase of $5 billion over the previous week.

This is the largest net long position, in terms of dollar value, that these traders have had since early March 2000, after which the S&P went on to sprint 10% higher in the coming weeks. Before you say "Hey, wasn't 2000 the bull market peak?", I should note that these traders had become very net short by the time the market peaked in September 2000 (to the tune of $22 billion).

Anytime commercial positions reached $7 billion or more, the S&P was higher one month later 74% of the time (average return +1.9%), three months later 87% of the time (avg return +5.2%) and six months later 91% of the time (avg return +10.0%). Over those six months, the average maximum drawdown one would have suffered was -2.9%, while the average maximum gain one would have enjoyed was +12.4%.

Sounds like a good time to use some leverage on the upside!

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The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

» Normxxx - The Markets

By Sol Palha | 1 November 2005

"Not many men have both good fortune and good sense."
— Titus Livy BC 59-17 AD, Roman Historian

This article contains portions that were extracted from several past mkt updates (Sept 20-Oct 20, 2005)

The SP 500 and the Dow have hardly corrected when you look at things from the surface; dig deeper and you see something interesting. This lack of decline has been masked by the strength in the energy sector; indeed there are many stocks in the Dow that have experienced pretty significant corrections but most of this has been masked by the strong gains in the energy sector (certain Tech sectors appear to be reacting in the same way as the biotech sector).

As we have continually stated in the past these markets are getting more and more complex; it’s no longer a matter of just simple TA— one must also have the ability to see invisible corrections, peculiar patterns that could be precursors for big moves, the ability to know when to ignore certain TA tools even though they are screaming sell and the ability to constantly decipher on a psychological level what the markets participants are thinking. Yes the markets are getting harder to decipher but that’s what the markets are all about; you either adjust or die. To illustrate this silent correction lets compare some of the Dow components, about one month apart.

Generally speaking for the last 6 weeks the number of bears has been increasing rather rapidly and in those instances where the numbers dropped the number of neutrals jumped up. On 9/11 the number of neutrals jumped to 36% and on 10/16 the number of neutrals went up by another 11% from the preceding week (10/9). Neutrals represent bears without teeth or individuals that are usually too scared to take a position, which is a bullish factor; it therefore makes sense to add these numbers to the individuals that are bearish. When one does that the individuals that are bearish or clueless seem to dominate; this is yet another bullish signal.

2-year chart of Dow With weekly Bars

9-year chart monthly bars

Conclusion

Even though we have had a slew of negative data in the last month the markets have been resilient and it brings the term “ A market climbs a wall of worry and falls down a cliff of joy” to mind. It seems that when one examines all the list of negatives which is rather long (we are not going to mention them here as they are being broadcasted all the over the place) and looks at things logically, it appears that the markets should crash but this has not been the case to date. As a result we would be very careful about shorting this market right now, as it seems to have resisted some of the worst news out there. We decided to look at two charts: the first chart looks at the intermediate picture (2 years worth of data) and the other provides a longer term view; in both the long term up trend lines are still intact. Thus our conclusion is that even though there are many factors pointing to a huge market correction and maybe a crash there are other factors, which suggest betting on this, might not be a wise thing to do. Several things stand out

1) Dumb money (number of odd lot shares being shorted) seems to be shorting the hell out of this market.

2) The markets have digested a huge amount of bad news in stride. This is a very bullish development

3) The long term up trend line in both the intermediate time frame and long-term time frames are both intact.

The world has always gone through periods of madness so as to advance a bit on the road to reason.
— Hermann Broch 1886-1951, Austrian Novelist

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The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

» SteveT - November 4, 2005 Sentiment

I am using the VTO report for the II data. http://vtoreport.com/sentiment/sentiment...
Note for clarification historic sentiment tables are for that current week and not the four-week moving average.

Investors Intelligence Bulls 46.4% Bears 26.8% Correction 26.8%
46.4/(46.8+26.8) = 63.39 %
Four Week Average = 61.38 %

A few historic dates: 7-20-98 68.42% 10-12-98 47.41% 4-3-00 67.79% 1-1-01 64.10% 4-4-01 58.91% 9-17-01 52.0% 9-21-01 48.7% 7-19-02 47.2% 7-23-02 47.2% 10-9-02 50.0%

Sideline Money Bears + Correction =53.6 %
Four Week Average = 54.43 %hairie has researched some fascinating numbers for all time high bulls readings going back to 1965. http://www.suite101.com/discussion.cfm/investing/6028/799-808#message_8
and lows from 1965-2003 http://www.suite101.com/discussion.cfm/investing/6028/810-819#message_4

From Barron' s 11/7/05
The American Association of Individual Investors
Bulls 43.0% Bears 27.6% Neutral 29.5%
43/(43+27.6) = 60.91%
Four Week Average = 49.9%

Historic dates for comparison:
7-16-98    44.3%        S&P 500 Close 1186.75
10-12-98   36.76%       S&P 500 Close  984.39
4-3-00     77.78%       S&P 500 Close 1505.97
1-1-01     58.82%       S&P 500 Close 1320.28
4-4-01     51.35%       S&P 500 Close 1103.25
9-10-01    47.34%       S&P 500 Close 1085.78
9-17-01    42.11%       S&P 500 Close 1038.77
9-21-01    41.08%       S&P 500 Close  965.80
7-19-02    32.88%       S&P 500 Close  847.75
7-23-02    32.88%       S&P 500 Close  797.70
10-9-02    42.36%       S&P 500 Close  776.76