Institutional Sentiment & Analysis Weekend Report
for the week of June 26-June 30, 2006
www.WallStreetSentiment.com
Published Saturday, June 24, 2006
by Mark S. Young
Equity Guardian Group, LLC.
Investment Management & Research
800.769.6980
www.EquityGuardian.com
Short-Term Sentiment:
Positive.
Intermediate-Term Sentiment:
Very Positive.
Longer-term Trend: Positive.
Intermediate-term Trend:
Buy--unconfirmed.
Short-term (one-day) Signal:
None. We're looking for trades anyway.
We are trading these signals intra-day with KTT subscribers on Yahoo IM--contact usfor details.
Ideal ETF Portfolio (tracking portfolio):
25% SPY at 127.70
and
25% QQQQ at 42.10
and
25% QQQQ at 41.55.
and
25% QQQQ at 39.17.
and
25% SPY (on margin) at 126.75
and
25% SPY (on margin) at 125.20
We hold for now. We may add on confirmation of a turn.
Results of the Wall Street Sentiment Survey (formerly known as the FearlessForecaster Sentiment) taken after the close on 6/23/06
Response was to this question: "At the end of next week will the S & P 500 closeup (bull), down (bear), or unchanged/no opinion (neutral)?"
Weekly BULLS: 52%
Weekly BEARS: 30%
Our `Smart Money' Pollees are 33% Bullish and 67% Bearish.
Our Amateur Trader Pollees are 50% Bullish and 50% Bearish.
The Senticator is Bullish.
Last time, I neglected to outline my prediction, even though I did chart it. My chartssaid to look for chop lower into Tuesday and then a rally into the end of the week. Wewere down into Tuesday and rallied Through Wednesday, but then we chopped lower. I thinkwe can take a C- for that call. Especially for making you guess from the chart. Doremember, however, that this prediction is only for illustration. A good trader is goingto fine tune his approach with each passing day.
The Mechanical and Subjective models went fully long 125.40 on Monday. Both exited at124.44 for a loss. Last week's loss was much smaller than we noted due to a nice $0.55dividend.
Proprietary Surveys
This week, the WSS Surveyees are rather Bullish. The "Smart Money" guys arerather Bearish, while our survey of "amateur" (more emotional) traders arerather neutral (evenly split). The Senticator is Bullish. The disparate readings areinteresting. Perversely, I suspect that our smart money guys more closely represent thehedge fund managers and to my way of thinking, it is this crew that has needed tocapitulate before the rally (everyone else has already). One week may not be enough, but Ithink it's at least supportive. One thing I've learned, watch out for something excitingwhen the pollees are all over the map.
Message Board Sentiment
The message board sentiment poll now shows Bulls at 34% and Bears at 42%. This is alittle Bearish, since historically these buys tend to be right. Participation was aboutnormal. The Actual Position Poll shows 41% at least partially long, and 29% at leastpartially short. There are 20.59% fully short Bears. This is above my 20% fully shortthreshold. This number was much higher on Saturday, too. This is constructive, but it'sunclear how Bullish it is, as yet. What I really want to see several days of solidshorting, north of 39%. We may not get it, but that would indicate that the last group oftraders is finally Beared up.
Options Sentiment
Daily P/C ratio: 1.00. Neutral to Constructive.
10-day P/C ratio: 1.06. Constructive.
Equity P/C ratio: 0.64. Neutral.
OEX PC ratio: 1.43. Neutral.
OEX $-weighted* P/C ratio: Unavailable.
QQQQ $-weighted* P/C ratio: Unavailable.
ISEE Sentiment Index: 134. Neutral.
The data are generally constructive but that's about it. That said, ISEE, which measuresnon-pro, non-programmer, non-specialist options buys, gave a huge Buy last Friday with a77 reading which is a new multi year low. The prior high OEX $-weighted P/C ratios sets upan intermediate-term Buy signal should we confirm a turn the trend. The 10-day CBOE Buy isa signal of intermediate-term import as well. We also got a repeat Buy from the RelativeVIX recently (see chart here http://www.equityguardiangroup.com/mv.htm ). Generally thedata is foggy for the near term, but suggest more rally for the intermediate term.
The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is toooptimistic, under 100 too pessimistic. I've loosened that a bit in recent months.
*$-weighted data courtesy of Hamzei Analytics. Readings over 2.0 are Bullish and near 0.5are Bearish.
General Public Polls
Last week, AAII reported 34% (vs. 26%) Bulls and 42% (vs. 55%) Bears. This is a decentBullish shift but we're still in Buy territory. Sometimes they say that the shift fromBearish to Bullish is more important. I'm not so sure in this instance, but you neverknow. After all, last weeks reading was the most Bears since the 2003 low. That was thelow of a multi-year Bear market, not a modest correction. We've had 6 weeks solidly in Buyterritory. We should begin an intermediate-term rally here. Investors Intelligencereported Bulls at 35.6%, and Bears at 35.6%. This is showing increased Bearishness. Let'ssee if they get more Bearish on the rally. LowRisk reported 33% Bulls, vs. 23% lastweek, and 46% Bears, vs. 53% last week. This is a Bullish shift, but then again, we had apretty big rally last week, too. I suspect that more rally won't generate many more Bullswhile more decline will load the boat with Bears.
Rydex Sentiment
The Rydex Dynamic Bull funds saw $11MM of outflows, while the Dynamic Bear Funds hadoutflows of $0.6MM. The overall fund shifts were very mixed showing considerable confusionthough there was yet again another solid purchase of Ursa fund. That's probably Bullishbut we've seen this before and all this does is stack more fuel for the rally...if andwhen it comes. Certainly, there are plenty of signs of excessive Bearishness. The currentUrsa/Nova ratio is at 4.25 which is still quite high after reaching a multi-year high onTuesday. The RSO showed a solid Bearish asset shift on a very small decline (virtuallyflat) which is isn't technically a Buy, but it is constructive. We have all the fixingsfor a great intermediate-term rally, but we need to get a confirmed change in trend. Wehave an unconfirmed IT Buy (and a confirmed one for the NDX), but we badly need morestrength and breadth breadth to confirm for the market at large. Until then, we have to becareful.
Conclusion
The Senticator is Bullish so we will go long again. We have almost all the makings fora dandy rally. The Amateur Investors are Beared up (see AAII herehttp://www.equityguardiangroup.com/mv.htm ). The Amateur Speculators are about as Bearedup as they get (see the RSO and the Rydex Ursa/Nova ratio and the cumulative asset flowsinto Ursa fund). Normally, that would be enough to spark a rally immediately. This time,it has not been. Our read is that this is because the market is now much more dominated byhedge funds. According to some reports, fully 30% of the market's volume is hedge fundtrading. As such, we need to take their mentality into account. It is clear that unlikethe average speculator, the hedge funds were much more Bullish on the way down. It's ourguess that they were over exposed and that the market was weak until it wrung the excessesout. So, how do we measure this segment of the market's sentiment? Well, it's tricky. Theyare nimble and not always wrong. They're also relatively unregulated, which makes themhard to track. The closest we can really come is to look at nimble trader and professionalsentiment. One measure is Investors Intelligence (which I've be under emphasizing for toolong), and we can also build proprietary surveys.
Currently, Investors Intelligence is at levels not seen since the lows of 2002. Weactually saw LESS Bearishness at the 2003 low. This isn't a perfect tool, but I think it'sgetting at a marked increase in Bearishness by at least one subset of professionals. Our"smart money" surveyees are also a more Bearish and I'm seeing some anecdotalincreases in Bearishness elsewhere. The bottom line is that I think we have enoughBearishness amongst the hedge funds players to finally get a rally going. We can get more,but with so much additional energy built up, we have to be on the look-out for a hugerally soon. All we need is to confirm with a bit better breadth and a price strength. TheNDX has already given an IT Buy and has confirmed. Remember, people sell at market lowsfor short-term reasons, so if this thing breaks and you find yourself wanting to short forthat last leg down, don't overstay your welcome and make sure you are looking for a rallyat any time. Also, watch closely for the "change up"--if they open it weak andclose it strong, don't screw around, just get long.
This week, I'm looking for chop on Monday, up on Tuesday, down on Wednesday and up intoFriday. Don't let that opinion bias you, however. If you see a buy set up, buy it.
We don't have an official ST Sentiment signal. We may try a trade anyway. Since we've beenpublishing our ST Sentiment Signals, we've had 27 trades and 21 winners. We're keepinglosses small and have consistently nailed down winners quickly. If you are interested inour ST Sentiment Signals and would like to receive these day trades and instructions viaboth email and Yahoo Instant Messenger (with specific trade set ups, ongoing entry, stop,and exit points), please contact us with your yahoo ID. There is a $39.99/month surchargefor this service.
The Mechanical and Subjective models will again go long at the open.
Ideal ETF Portfolio (tracking portfolio):
25% SPY at 127.70
and
25% QQQQ at 42.10
and
25% QQQQ at 41.55.
and
25% QQQQ at 39.17.
and
25% SPY (on margin) at 126.75
and
25% SPY (on margin) at 125.20.
We're long. We'll add if we confirm a turn.
Past performance is no guarantee of future returns.All information included in this missive is derived from sources we believe to bereliable, but no guarantee can be made to that effect. None of the forgoing should beconstrued as an offer or solicitation to buy or sell any security. The publisher may havea long or short position in the funds or securities discussed at any given time. We aren'tyour advisor, unless you have a signed contract with us. Please review any trade that youdo with your trusted advisor FIRST.
If you'd like to receive the ISA Daily Trade Navigator, you'll need to make sure to orderat this link (please indicate your subscriber status in the "notes"). If you area KTT or Institutional subscriber, your ISA Navigator subscription is included.
For more on using the ISA and the various sentiment poll data, click here:
Mark Young
Editor
See the link below for a historical chart of Fearless Forecaster sentiment.
ABOUT SENTIMENT AND ANALYSIS
The Fearless Forecaster Sentiment Poll is taken each Friday from a generally static poolof experienced technical analysts (both private and professional). The Fearless ForecasterSentiment is not normally a good fade, though there are times when it can be.
The Fearless Forecaster sentiment data is useful on the short term; the FearlessForecasters tend to be right. Typically they are right sooner rather than later, ifthere's a large plurality. On the flip side of the equation, if 90% or more are Bullish orBearish, the odds of them being right over the very short term are huge, but the odds of amajor turn (in the opposite direction) soon thereafter are also quite good.
We have also found that when the Fearless Forecasters are evenly split, look for a BIGmove in either direction, but usually down.
Over the years, we have found a number of other tools to help in evaluating the FearlessForecaster Sentiment. We publish this in our weekly "Institutional Sentiment &Analysis" (a part of our institutional research). These additional tools are our"Smart Money" poll, and our Senticator. Both are proprietary polls run by us.
We have found that the Senticator tends to be right by the end of the week (as much as82.7% of the time), though it tends to be more accurate in a rising market than a fallingone.
The "Smart Money" pollees are very useful when there is divergent opinion. It'sgenerally NOT a good idea to fade the "Smart Money" unless"'EVERYONE'" (all sentiment measures) is in agreement. When in doubt about themeaning of the Fearless Forecaster Sentiment Poll, defer to the "Smart Money"poll. The "Smart Money" guys are folks with whom I've worked or whom I'vewatched for YEARS. They all have different approaches and they're all VERY good (notinfallible, just good analysts/traders).
Subscriptions to Institutional Sentiment and Analysis are $99 per year. This also includesspecial sentiment updates and reports. Our polls are unique and insightful, and ouranalysis is some of the most accurate on the Street.
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