US Market Timing
Advisors Sentiment
16 January 2008 By Mike Burke & John Gray
Overview
Advisors continued to slowly shift to the bearish camp as the stock market has gotten off to one of its worst starts ever. One reason they have been slow to change is their knowledge that historically stocks rally at the start of a new year as new funds become available. Additionally, Presidential Election years have a historic upside bias as the incumbents increase spending in an attempt to hold their posts. Bearishness will likely continue to grow as biweekly and monthly newsletter editors update their comments.
The latest data shows the bulls at an 18-week low at 45.6%, down from 48.4% last week. That is over 16% below their early October peak at 62.0%, which occurred as virtually all indexes achieved highs. The current level of the bulls is just above the 45% level that we consider ?normal? for an up trending market.
The bears increased to 26.7% from 25.8% a week ago. They are slowing moving in the right direction, but their number is still below the 29.0% reading shown seven weeks ago, as the indexes were setting their Thanksgiving lows. Both bearish readings were well below the 37.4% level they showed at the August 2007 market bottom.
The advisors classified in the correction group were 27.7%, up from the previous 25.8% reading. This group is short term bearish but longer term bullish and they look at market dips as buying opportunities. They are also potential bears as lots of editors? shift from a bullish outlook to correction before turning outright bearish.
So stocks have gotten off to a horrible start in 2008. Last year ended with some optimism that the Fed would act aggressively to boost the economy but traders were disappointed by their meager ¼ point cut. Additional downside pressure continues from the sub-prime debacle and still unknown liability of the large financial companies. The perception has been that the recent write-downs have still not reflected the full costs.
The difference between the bulls and bears is 18.9%, down from 22.6% a week ago and moving in a positive direction. Four weeks ago the spread was 34.1%, very close to the bearish spread in the 35-40% range that occurred in October. The early October 2007 market high saw a very negative sentiment difference at 42.4%. By Thanksgiving the reading had contracted to neutral levels, and it just missed a buy signal. A bull-bear difference that narrows to around 15% (or less) and then expands provides a buy signal. That was the late August 2007 signal, [the spread was a very bullish 3.2%, and before that on 14-March-2007 [16%], and in June 2006 [0% difference]. The recent pullback on the Bulls/Bearish difference chart is approaching another entry point. |
