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[Doug]

Another warning is sentiment. Again this is not a great timing tool and sentiment is a bit like statistics--people can manipulate the data to tell any story they want. I know a lot of "sentimentalists" who swear their data shows a strong bullish market here. I've actually tended to shy away from sentiment readings because I find too many of them to be unreliable. But the data at ise.com has been more useful to me as I've watched it this past year. The opening paragraph on their web site states "The ISE Sentiment Index is a unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction." They feel this approach filters out market maker and firm trades and captures only investors buying puts and calls as an opening trade. They believe this provides a better reflection of investor sentiment. Here's the current chart showing the data since July 2007:

ISEE Index chart, Daily, courtesy International Securities Exchange (ISE)


I drew a red line across the top where it's been tagged 3 times since the July 5th reading of 186. Daily readings above 200 show an excessive amount of call buying (bearish from a contrarian standpoint) and readings below 100 show too many put buyers--the reading of 50 was on August 7th which was a week prior to the August 16 bottom). After the July 5th reading of 186 the stock market (NYSE) topped 6 trading days later on July 13th. After the 187 reading on October 8th the NYSE topped out 3 days later on October 11th (and actually made its highest closing high the following day on the 9th.

Now we come to today's 191 reading. I report, you decide. If we have too many people leaning bullish into the FOMC meeting tomorrow there's a good possibility this boat is going to tip over and drown a few bulls.

Regards,

[OEXCHAOS]

My feeling is that the decline yesterday was enough to fulfill that high ISEE reading. That said, there is a pretty good Bullish contingent in the Sentiment. Of course, there's also a pretty big Bearish contingent. You have to bias long in that context, but there's reason for caution. BTW, sentiment is reliable, but you have to know how to use it. One thing I know is that using it to pick tops isn't the best thing. Mark