Thursday, June 19, 2008

Investor Sentiment Check

Investor sentiment is growing more bearish, with continued weakness in the financial headlines and the incessant rise in oil weighing adding to the angst.

But the market has been in a downtrend since peaking on May 19th, a month ago. Since then, the market has continued to work its way lower, and is pretty oversold judging by the oscillators.

Sentiment in and of itself usually doesn't lead to a market bottom, but when the market gets sufficiently oversold, even a little bit of good news helps the market rally. Maybe a bigger drop in oil could be the catalyst this time around? And when the market does rally, the unwinding of all of these bearish bets adds fuel to the fire and helps boost things on the upside.

The investor surveys are universally bearish right now. Here is a look at some of the indicators I follow:
  • The Investor's Intelligence poll shows more bears than bulls (36% bulls, 37% bears), which is a fairly rare occurrence
  • The spread in the AAII poll is -13% (33% bulls, 46% bears); bears have exceeded bulls for 3 of the last 4 weeks
  • The Ticker Sense blogger poll spread is -5% (37% bulls, 42% bears); bears have exceeded bulls for the past 6 consecutive weeks
  • Bulls on Market Vane are down to 48%; recently they were as high as 55%, and a year ago they were a whopping 71%
  • The 10-day CBOE put/call ratio is back above 1.0; this is often a sign of excessive bearishness
  • The 10-day ISE call/put is also bearish at 111; recent peaks have come below 100, but a year ago it was 160

In all, I think we are setting up for a nice relief rally. The financials are oversold again, and techs have been biding their time as well. I am putting more money to work today.


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