If a chart pattern looks odd does it not make sense that something odd might be causing the pattern? Since June of 06 the market has for the most part moved higher at a measured orderly pace. Suppose one or more central banks or their proxies had started out in June of 06 placing supporting bids under the market and then raised the supporting bids every time the market rallied. The chart of the averages might look somewhat like the chart of the actual Russell 3000, below.
Today Yahoo finance had the following results to one of their polls.
Where will the S&P end 2007?
At or above 1500 77%
Below 1500 24% 13375 Votes to date (that is a good sized sample)
ASII on the other hand is at only 43% bullish.
Investors Intelligence is at 72 % Bullish. (4th week over 70%)
The question I have to ask is how much difference do on balance bearish sentiment numbers make if the market is getting artifical support? I am guessing that we are not going to get any kind or a climatic top, but a rounding top is a possibility.
James,
I've been at this for 25 years and have looked at sentiment for most of that time. The nature of sentiment measures has changed a lot over this time, but nature of sentiment itself has not.
Measuring "on balance" sentiment is tricky in the best of times, and in this day and age, it's even tricker. My approach is to break sentiment up into three sectors. Individual Investors, Small Speculators, and Small Hedge Funds. In my view, sentiment works only because some significant segment or segments of the market are caused to behave irrationally and/or uneconomically. Big money mutual fund or pension or insurance co., or even big hedge fund guys (for the most part) don't do that. Why? They don't over-extend. They aren't driven by emotion and to some degree, they don't care about the market because they ARE the market.
So, anyway, if you're going to aggregate sentiment, you probably ought to do it by sectors. As I look at it, small investors are leaning way to Bearish. That's Bullish. Small speculators are beginning to lean Bullish, but they're still spotty--some are still Bearish while others are pretty Bullish. Small hedge funds are mixed. Some are incredibly Bearish still, while others are getting pretty Bullish. In this context, I don't think we have the makings for even a good correction, let alone a top of importance.
If we can get even ONE of those sectors leaning hard Bullish, like we did last May, we can get a pretty good sell off (with the right technical support, of course). For a major top, however, we will need to see much more Bullishness, I think and then after that, more strength.
Oh, as for II, This indicator has been in "sell territory" for about 8 weeks, if you want to cheat a little on one week's numbers. We were in "sell territory" for 15 weeks prior to the February mini-debacle. In other words, we could have a long way to go yet.
I'm not predicting how long we got without a correction, I'm just saying that today, right now, we don't have much sentiment support for a big one.
Mark
