Conclusion
Last week, I said that NAAIM has the median advisor back over 80% long again, which is a bit Bearish, but that options expiration week would imply a Bullish bias, even as we expected at least one down day just for the game players. Well, the market stayed on track for us pretty well all week and we were able to adjust our view to call Friday pretty well too. Currently, we've got good reason to be a bit Bearish. As we discussed in the study that we sent subscribers, more than 80% median exposure is a fairly reliable sell for a 5% decline (see chart below). Add to that the fact that ISEE is on a Sell too, and we've got a strong case for a week of sloppy trading. That said, the message board weekly poll has plenty of Bears and so does the WSS survey. This implies at least a bounce.
My call for the week is for a rally on Tuesday that fails a bit late and down into Thursday and then a bounce thereafter.
Today's letter is as follows:
Wall Street Sentiment Daily for 1/21/10
Institutional Sentiment and Analysis
Thursday 1/21/2010 at 9:20 am
By Mark Steward Young
Short-Term Sentiment: Mildly Negative.
Overall Intermediate-Term Sentiment: Mixed-to-mildly Bearish for the market.
Individual Investor Sentiment: Neutral for the market.
Small Speculator Sentiment: Mixed-to-Bearish for the market.
Small Hedge Fund/Manager Sentiment: Bearish for the Market.
Longer-term Trend:
Bull Market Condition.
Intermediate-term Trend:
Negative. Unconfirmed.
Short-term (one-day) Signal:
None.
We are trading these signals and others intra-day for our Premium subscribers--contact us for details ( http://www.wallstree...om/contact.html).
*******************************************************
The ISEE 10-day is still on a solid Sell. $-weighted SPX P/C alone is high which is a Bearish "Tell". Partially Long Bulls in the message board polls is Bearish.
********************************************************
Message Board Sentiment
The message board sentiment poll now shows Bulls at 33% and Bears at 52%. This is Bullish as readings above 50% are a fade, even though normally this crew is at least short term right, at least for a bit. Participation was near normal. The Actual Position Poll shows 19% fully long and 29% partially long. 10% are partially short and 19% are fully short. This is below my 20% threshold, but only just barely. The FL/FS 1-day is neutral, but the even larger number of partially long Bulls is a Bearish. They love to shake weak-handed Bulls. Everybody thinks that they've got the key to the lock. The FL/FS 5-day Fully Long/Fully Short ratio is just barely out of Buy territory.
http://www.traders-t...st&id=14746.png
Check out www.traders-talk.com for early updates of the sentiment polls every day and overnight.
Our T-4 Turn Indicator went out at 40, which is relatively good activity but still well away from a signal. Typically we want to see readings above 80 or higher before we look for worthwhile turns. We will drop this to 70 as we've taken some actions recently that improve the signal to noise ratio, but have lowered the number of new topics. This indicator doesn't catch every top and bottom, but it is a great "Heads up!" indicator.
Options Sentiment
Daily P/C ratio: 0.92. Neutral.
10-day P/C ratio: 0.76. Sell.
Equity P/C ratio: 0.69. Neutral but the sharp rise is mildly Bullish. The 10-day is well up in Sell territory.
OEX PC ratio (not a fade): 1.47. Neutral to slightly Bearish.
OEX 10-day PC ratio: 1.41. Slighly Negative.
OEX $-weighted* P/C ratio: 1.42. Neutral.
NDX $-weighted* P/C ratio: 1.12. Neutral.
QID (Ultra Short QQQQ) P/C ratio: 0.15. Buy.
SDS (Ultra Short SPX) P/C ratio: 0.40. Weak Sell.
ISEE Sentiment Index: 117. Buy.
10-Day ISEE Sentiment Index: 135. Sell. Expect weakness over the next week or so. (H/T to persistent subscriber)
Relative VIX: Neutral.
Daily VIX: Neutral.
Most of the P/C's are still a mess. The OEX is slightly negative, but the equity is slightly positive. The 10-days are on Sells and so is the OBSG as of the day before yesterday. The ISEE 10-day is also still Bearish for the next week or two. The one thing that makes us very nervous is the high SPX $-weighted P/C ratio. During the Bear market, this was a major "tell"; when none of the other $-weighteds are high, but the SPX is, it signifies "smart money" money positioning short for a nasty down draft. This isn't a Bear market, but I'm still nervous about today. Market Harmonics' Options Buyers Sentiment Gauge (thank you, Tony Carrion http://www.market-harmonics.com) is on a Sell. Most options indicators are contrary; if folks are buying calls, we want to fade them and go short. The OEX nominal P/C is an exception, because the OEX traders tend to be right, unless they are paying up for options (which will show up in the $-weighted data).
(If the chart is corrupted, use this link: http://www.market-ha...nt/obsglong.gif )
The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is too optimistic, under 100 is too pessimistic. *$-weighted P/C data courtesy of Fari Hamzei of www.hamzeianalytics.com . Readings over 2.0 are Bullish and near 0.5 are Bearish. OBSG provided by Tony Carrion of Market Harmonics.
General Public Polls
AAII reported 40.00% Bulls and 34.74% Bears. That's a good shift in Bearishness and that's good news for the stock market. This is just what the market needs to find it's feet fairly quickly, though not necessarily immediately, however. Last week, we had 47.44% Bulls and 26.92% Bears.
Investors Intelligence reported 52.2% Bulls and 18.9% Bears vs. 53.4% Bulls and 15.9% last week, which is showing modestly reduced Bullishness and increased Bearishness. This is not bad news, but it's nothing Bullish, either. The Bull/Bear Ratio is still not far from the same levels as at the top in '07.
Newsletter Advisors dropped to 53% net long but Naz advisors held at 57% Long. This is Bearish, near term.
Lazlo Birinyi's site, Tickersense, reported 40.00% Bulls and 60.00% Bears. That's a big jump in Bearishness. Wish we'd had this data on Monday, as we would have considered buying the market for a bounce.
The RealMoney Poll was showing 49.66% Bulls and 34.98% Bears. That still seems like too many Bulls after last Friday.
Last week,The National Association of Active Investment Managers (NAAIM) Sentiment Survey shows the median market exposure is at 85% up from 80% and that's still in my "sell zone". The mean reading is also problematic at 73%, though only on a short-term basis. Note it was high like this just prior to the October weakness. For more on our analysis, see this brief study http://www.traders-t...t=0#entry502593 . Also, see the chart below.
TSPTalk reported 58% Bulls and 25% Bears. That's technically a Sell by their new measures, and makes for 7 in a row. I'm seeing this as pretty Bearish for the market as well. They are now using their Bull Market Filter.
Conclusion
Last time, I said that my gut said that this market badly needed to reload and that it would take more than a day to do it. I said that if we couldn't hold Tuesday's break-up, the Bearish case is still in force. Well, we know the name of that tune. So, here's what we have. We aren't yet very oversold but we're getting there. Momentum is negative. The $-weighted SPX P/C "Tell" is Bearish short term. The Parltially Long Bulls in the message board poll are very high. All these things suggests another shot down, to at least keep the Bulls honest. I'm down with that. The weakness may not last (it probably won't), but it could be pretty violent and surprising to many. Expect the stops to be run. After that, well, the best bet is for them to run it right back on up, but that might be from 5% lower. One thing of note: The daily MACD crossed over to a Sell yesterday. Near term, that's our "Best Fade" Buy signal. We can and probably will fall first, but the odds of a rally within 4 days approach 90%. So, down first (maybe a lot) but up next week. Watch for signs of a low in the next few days. If it rallies to soon, today, it's a short, I'd say.
We are on twitter and we offer comments and trade updates throughout the day as we have time or as we see sentiment of interest. You can follow us at http://twitter.com/WallStSentiment .
The Mechanical Senticator and Subjective Models will both sit flat. Remember, these models must trade in the direction of the Senticator or not at all. In case you haven't been keeping track, we just figured that the Senticator has outperformed the market by 58% over the past 3 3/4 years and is up nicely (15%) this year--that's with no leverage and few shorts.
We are looking lower. Since we've been publishing our ST Sentiment Signals, we've had 142 trades and 94 winners. If you'd like a trial, feel free to contact us ( http://www.wallstree...om/contact.html).
-------------------------------------------------------------------------------
For more on using Wall Street Sentiment and the various sentiment data included, click here:
http://www.WallStree...<br /> <br /> Mark Young
Editor
. Good job.
