Market Indicators - Investor Sentiment

Top 421. Aug 31, 2001 5:25 PM

» Rande - Re: Did you know...?

In response to message posted by BANANAS_:

Was buying yesterday, but not based on ARMS or anything else, except the fact that I had cash and an equity allocation that had dipped below my long term target allocation. It would be nice if that was it for the downside, but if not then it will just be another opportunity to put the allocation in line at lower prices.

-- posted by Rande

Top 422. Aug 31, 2001 5:35 PM

» DennisL - Re: Re: Did you know...?

In response to message posted by Rande:

Was buying yesterday, but not based on ARMS or anything else, except the fact that I had cash and an equity allocation that had dipped below my long term target allocation.

Happy to see you doing exactly what I did yesterday, Rande. It further confirms my faith in deploying this tactic. Only difference is I did mine with profits from bonds rather than with cash. <img src=/images/emoteicons/happy.gif alt=smile>

-- posted by DennisL

Top 423. Aug 31, 2001 5:59 PM

» Rande - Re: Re: Re: Did you know...?

In response to message posted by DennisL:

It's good to have the cash, but either way keeping the allocation in line is what counts. At times such as these it's sort of a forced "buy low" (or at least "lower" smile ) strategy so long as you can maintain the discipline.

-- posted by Rande

Futures Markets Have Bad News For Bulls

Top 424. Sep 1, 2001 8:31 AM

» JenL_2 - Re: VIX, Equity Put-Call Ratio, Arms Update for Thursday...Uuugh

In response to message posted by BANANAS_:

More on VIX from 9/3 Barron's:

By Michael Kahn

Technical analysts use many indicators to gauge the health of the stock market. They break volume down into up volume and down volume. They track momentum by a host of well-known and esoteric combinations of price, volume and time. They measure price itself in any number of obvious and not-so-obvious ways.

But one aspect of the analysis is missing -- and to some it is the most important, after the actual price of the stock or index--namely, sentiment. We get our sentiment readings from many places. The options market provides several ways to measure just how aggressive the bulls and the bears really are.

My favorite indicators in this area are the Chicago Board Options Exchange Volatility Indices for the S&P 100 and the Nasdaq 100 (VIX and VXN, respectively). Also known as the "fear indices," they measure sentiment through the premiums investors are willing to pay for options -- put options in particular. (A put option is a contract that grants the right to sell at a specified price a specific number of shares by a certain date.)

The more bearish the investor, the more willing he or she will be to purchase the protection afforded by put options. As the collective demand for put options increases, so will their premiums. This is basic economics.

During "normal" trading, whether the market is rising, falling or moving sideways, the VIX and VXN provide little value to the average investor. These "fear indices" become important only when they move to extremes -- and that is just where they are this week.

The VXN set its lowest closes since July 3, which was immediately after the important July 2nd swing high on the Nasdaq Composite index (see chart 1).

Chart 1
<img src="/files/mysites/jen2/tabarrons9-3.gif" width=449 height=372>

Contrast this with where the VIX was intraday on March 22, when the Dow Jones Industrial Average and the Standard & Poor's 500 bottomed (see chart 2).

Chart 2
<img src="/files/mysites/jen2/tabarrons9-3-2.gif" width=449 height=372>

So, according to the VIX and VXN, the major indexes are now closer to tops than to bottoms, and that is a bearish sign.

Of course, we must combine the signals given by the VIX and VXN with where the current market stands. On August 15, the Nasdaq broke down below the bottom of its five-week trading range and followed through with more losses (see chart 3). It then scored a short-term term reversal bar August 22 and two days later, news that former bellwether Cisco Systems saw its business stabilizing sparked a nice rally.

Chart 3
<img src="/files/mysites/jen2/tabarrons9-3-3.gif" width=449 height=310>

Technology stocks led the market higher, but when prices hit resistance at the bottom of the former trading range, they were stopped cold. On Tuesday, a worse-than-expected consumer confidence report sent stocks reeling, and the Nasdaq has now made a successful test of its August 15th breakdown. This is also not a good sign for the bulls.

It shouldn't be surprising, since layoffs are being announced daily. Who would be confident about the economy if they are out of work? And as for Cisco's move, people seem to be clinging to the notion that this stock matters in 2001 the way it did in 1999. Didn't it spark a major market sell-off just three weeks ago after a bad earnings report? The bulls have a very short memory, though, and most of last Friday's "business stabilization rally" has already been lost.

But let's take a closer look at sentiment, and for that we go to the futures markets.

The Commodity Futures Trading Commission publishes the weekly Trader's Commitments report detailing which segment of the trading public is long or short and by how much. Simply stated, it divides the market into large speculators, small speculators and commercial hedgers (the so-called "smart money").

Commercial hedgers either produce a commodity and need to lock in the prices at which they sell them or use a commodity and need to lock in the price at which they buy. They are in effect hedging their businesses against price fluctuations to reduce risk. These entities are also the big players in the market and can withstand short-term volatility, unlike futures traders, who operate on margin.

When the commercials take a major position, they often are right. When speculators, especially small speculators, take a major position on the opposite side, an important turning point in the market usually is close. In the bond market, the commercials are now net short. In the crude oil market, they are net long, and that sets a negative backdrop for stocks.

As for futures trading in stock indexes themselves, technical analyst John Kosar, CMT, points out that the larger speculator group has been as net long as it is right now on only two other occasions since 1999. Both times, in July 2000 and May 2001, were important intermediate market tops.

Most of the happy talk in the media these days probably comes from these large speculators or from their analyst advisors. How many times do we hear someone proclaim that the Fed's interest rate cuts are starting to work or that the economy has turned the corner? According to trader's commitments analysis, the group that was caught with a major bullish bet at exactly the wrong time twice before in the past two years is once again showing itself to be extremely bullish. As with the VIX and VXN "fear indices," extremely bullish readings for large speculators here are actually bearish for the markets.

Kosar does point out that the analysis shouldn't be used as a timing tool, since extreme readings can persist. But from a sentiment point of view, the feeling that a bottom has already been made is pervasive. Many big bets have been placed on the bullish side, and as we know, the market does not like to accommodate the masses.

Again, we say, be careful out there.

Michael Kahn is Chief Technical Analyst for BridgeNews http://www.bridge.com and the author of two books on technical analysis, most recently Technical Analysis: Plain and Simple. He is also Director of Marketing for the Market Technicians Association http://www.mta.org and can be seen regularly on such financial news broadcasts as PBS's Nightly Business Report and Yahoo! Finance Vision http://www.vision.yahoo.com

subscribe to WSJ & Barron's Online @ http://www.wsj.com

......Jen

-- posted by JenL_2

Top 425. Sep 1, 2001 10:15 AM

» SteveT - 9-03-01 Sentiment

Investors Intelligence is under 50% Bulls for the fifth week in a row, and a noticeable 3% drop in bulls. The American Association of Individual Investors Bulls also dropped by about 3% funny thing the Bears dropped by over 8%. Many more Neutrals on the AAII poll, almost half! From Barron's August 27, 2001.

Investors Intelligence Bulls 43.9% Bears 30.6% Correction 25.5%
43.9/(43.9+30.6)= 58.93
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 56.27%

Sideline Money Bears + Correction = 56.1%
Four Week Average =53.55% I find this figure over 50% for several weeks to be noteworthy.

The American Association of Individual Investors
Bulls 31.4 Bears22.9% Neutral 45.7%
31.4/(31.4+22.9)= 57.83
Four Week Average = 53.35%

Sideline Money Bears + Neutral = 68.6% This has not been under 50% since about the end of May.
Four Week Average = 65.95%

For more info on AAII check out their web site. http://www.aaii.com/

-- posted by SteveT

Top 426. Sep 2, 2001 2:04 PM

» BANANAS_ - VIX, Equity Put-Call Ratio, Arms Index Update for Friday

VIX

Friday

Close: 27.85
21-day: 24.46
10-day: 25.15

Last Friday

Close: 22.29
21-day: 23.88
10-day: 24.53

Previous Friday

Close: 26.74
21-day: 24.23
10-day: 23.78

Equity Put-Call Ratio

Friday

Close: .60
21-day: .66
10-day: .60

Last Friday

Close: .48
21-day: .61
10-day: .66

Previous Friday

Close: .96
21-day: .63
10-day: .72

Arms

Friday

Close: .71
21-day: 1.46
10-day: 1.28

Last Friday

Close: .66
21-day: 1.34
10-day: 1.29

Previous Friday

Close: 2.53
21-day: 1.42
10-day: 1.67

Sources: Yahoo! Finanace; CBOE

-- posted by BANANAS_

Top 427. Sep 9, 2001 12:03 PM

» SteveT - 9-10-01 Sentiment

Investors Intelligence is under 50% Bulls for the sixth week in a row. None of their numbers have changed drastically in several weeks. The American Association of Individual Investors Bulls are under 50% for the seventh consecutive week. If those polled do as they have reported a great deal of money is on the sideline. I wonder how the numbers will look after the carnage of this week. I believe the current numbers were collected this last Wednesday. From Barron's September 10, 2001.

Investors Intelligence Bulls 44.3% Bears 30.9% Correction 24.8%
44.3/(44.3+30.9) = 58.91
Four Week Average =60.38%

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 56.27%
9-10-01 58.91
Sideline Money Bears + Correction = 55.7%
Four Week Average = 53.98

The American Association of Individual Investors
Bulls 30.3 Bears33.7% Neutral 36.0%
30.3/(30.3+33.7) = 47.34
Four Week Average = 51.27%

historic dates for comparison and S&P 500 Close.
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
Sideline Money Bears + Neutral = 69.7%
Four Week Average = 67.1%

For more info on AAII check out their web site. http://www.aaii.com/

-- posted by SteveT

http://cbs.marketwatch.com/news/newsfind...

Top 428. Sep 13, 2001 7:54 AM

» Rande - Poll:

Poll: Americans won't alter investing

Harris Interactive (HPOL) is saying that an Internet poll it has conducted indicates Americans will not spend less or alter their investing decisions despite expectations for additional economic downturn and the tragic events in New York and Washington, D.C. on Tuesday. The company said the poll found that Americans won't necessarily change their personal behavior apart from cutting down on their flying. The company noted the paradox between people who felt that the stock market would go down a lot (42 percent) and a little (37 percent) and the people who said they personally would sell stock (1 percent). However, the company said that 51 percent of those polled said that stocks were the worse investment.

Only 1% would sell, but they expect the market to go down. Must figure it will be the "other guy."

-- posted by Rande

Top 429. Sep 17, 2001 12:38 PM

» SteveT - 9-17-01 Sentiment

9-17-01
Sorry I couldn't get this to you all sooner, the data was not in the on-line edition this week. From the Hard copy edition of Barron's 9-17-01

Investors Intelligence Bulls 39.6% Bears 36.5% Correction 23.9%
39.6/(39.6+36.5)=52.04
Four Week Average =57.68%

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 56.27%
9-10-01 58.91
Sideline Money Bears + Correction = 60.4%
Four Week Average = 56.33%

The American Association of Individual Investors
Bulls 26.7 Bears36.7% Neutral 36.7%
26.7/(26.7+36.7)+42.11%
Four Week Average = 49.72%

For more info on AAII check out their web site. http://www.aaii.com/

-- posted by SteveT