Institutional Sentiment & Analysis Weekly 5/11/08
Published Sunday 5/11/2008
By Mark Young of Equity Guardian Group

Short-Term Sentiment: Mixed.

Overall Intermediate-Term Sentiment: Neutral-to-Bullish.

Individual Investor Sentiment: Mixed.

Small Speculator Sentiment: Neutral.

Small Hedge Fund/Manager Sentiment: Quite Bullish.

Longer-term Trend: Bull. Unconfirmed.

Intermediate-term Trend:  Bullish.

Short-term (one-day) Signal: None. We look both ways.

We are trading these signals and others intra-day for our Premium subscribers--contact us for details.

Ideal ETF Portfolio (tracking portfolio):

50% long DIA at 127.54.
50% long UWM at 50.61

I'm about fully long. I'm probably going to lighten up, but I smell another run. Watch for an alert.

Introduction

The late volume tell was again Bullish. I'm able to make a case for another shot higher, even though things are looking a bit tired.

Results of the Wall Street Sentiment Survey (formerly known as the Fearless Forecaster Sentiment) taken after the close on 5/9/08

Response was to this question: "At the end of next week will the S & P 500 close up (bull), down (bear), or unchanged/no opinion (neutral)?"

Weekly BULLS:  50%
Weekly BEARS: 50%

Our `Smart Money' Pollees were 0% Bullish and 100% Bearish.

Our Amateur Trader Pollees were 67% Bullish and 33% Bearish.

The Senticator is Bullish.

Last week, my call for the week was for down then up on Monday into Tuesday or perhaps Wednesday, then down from there. We got a down Monday, an rally into Tuesday, and then generally lower prices into Friday. Basically, I could only have been a bit more accurate. I think we can take an A for that call.  Remember, these predictions are for demonstration purposes and are not a substitute for trading discipline.

 


The Mechanical Senticator went long at 141.06 and the Subjective Senticator Models went long 1/2 there and doubled up at 140.91. We tried to exit at 142.56 but only got 142.20. We blew them out at the close at 141.51 for a loss. Note that the Senticator Models are based upon only one indicator and do not reflect our overall opinion. If the Senticator is Bearish or Bullish, the Mechanical model HAS to go short or long.

Proprietary Surveys
This week, the WSS Surveyees are dead neutral, on lower participation. The "Smart Money" guys are leaning fully Bearish, and the "Amateur" pollees are leaning a bit Bullish. The Senticator says "Buy". The data suggests some possible weakness near term, and then a turn.

Message Board Sentiment
The message board sentiment poll shows Bulls at 23% and Bears at 49%. Again, this would be Bearish since this crew normally tends to be right more often than not, at least for a bit but so few Bulls and nearly 50% Bears is a little bit Bullish. Participation was below average. The Actual Position Poll has 9% fully long and 20% partially long. 23% are partially short and 31% are fully short. This is still well above my 20% threshold, which is Bullish. Now, this crew often gets right at turns, but there are plenty weak handed Bears, so we need to be careful on the short side. The Fully Long/Fully Short 5-day is flashing yet another Repeat Screaming Buy. This is quite Bullish, intermediate-term, though often we see a couple days of weakness before a rally ensues. This is measure has only been more Beared up once and that last August. Historically, readings like this are never Bearish. The weekly Fearless Forecaster Poll shows 64.52% Bears. That's Bullish.


Click above for larger image

Check out www.traders-talk.com for early updates of the sentiment polls every day.

Our T-4 Turn Indicator went out at 52 which is way away from a signal. Typically we want to see readings above 80 or higher before we look for worthwhile turns. This indicator doesn't catch every top and bottom, but it is a great "Heads up!" indicator.


Options Sentiment
Daily P/C ratio: 0.93. Negative.
10-day P/C ratio: 0.94. Neutral.
Equity P/C ratio: 0.70. Neutral.  
OEX PC ratio: 0.98. Modestly Bullish.
OEX 10-day PC ratio: 1.39. Neutral.
OEX $-weighted* P/C ratio: 1.32. Neutral.
QQQQ $-weighted* P/C ratio: 0.69. Neutral.
ISEE Sentiment Index: 123. Neutral.
Relative VIX: Neutral.

The options data are pretty neutral, except that we're still seeing a negative reading from the CBOE P/C ratio and the OEX P/C is supportive. I'd say that there's a good potential for more chop based upon this data. Market Harmonics' Options Buyers Sentiment Gauge (thank you, Tony Carrion http://www.market-harmonics.com) remains constructive after coming off the level that marked the 2003 low.



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

TheStreet.com showed 40% Bulls and 40% Bears, another dead even reading. This is probably Bearish though it doesn't happen often enough to provide a strong read. Any weakness is likely to be short lived.

TSPTalk's weekly poll showed 38% are Bullish and 51% are Bearish. That's a Buy by their measures and mine. We can pay more attention to their Buy signals now that we are in an up trend. This says, "Weakness ought to be bought" and I agree.

Last week, AAII reported 52.81% Bulls and 24.72% Bears vs. 53.29% Bulls and 26.32% Bears last week. That's a small drop in Bullishness and a good drop in Bearishness. This is again a Sell, but one must be cautioned that while the last one was accurate within a week, often this indicator flashes a sell weeks or even months before a sell off. Don't be too Bearish. Remember, this indicator was in Buy territory for 21 of the last 27 weeks.

Investors Intelligence reported that Bulls rose to 44.4%, and Bears rose to 32.3% vs 40.9%, and 31.8%. This is showing increased and stubborn Bearishness, and a bit more Bullishness. This reading is still Neutral.

Mark Hulbert's HSNSI was basically flat at 39.2%, only showing a little faith in the rally, and Nasdaq advisors also went a tiny bit more net long at 23.2%. None of this is excessive, near-term pullbacks notwithstanding.

Lazlo Birinyi reported that Bulls were at 42.86% and Bears were at 33.33% in his poll. More Bulls and more Bears. That's a prescription for chop.


Rydex Sentiment
Our Rydex data shows that non-Dynamic Bull funds took in $2MM and Bear funds lost $17MM. The Dynamic Bull funds took in $28MM and the Bear funds lost $27MM. Not much of a tell there. The Amateurs are going long, however, and that might be a problem.

 
Conclusion
Last week, I said that I was confident that we were going to get some selling soon, but that with the Bearishness I was seeing I figured that they'd whip the market around for a while to frustrate the Bears. Well, we got plenty of frustrating action, but finally we got some selling. This week is options expiration so we can expect the unexpected. Still, the set up is interesting. First of all, the OEX P/C is Bullish, so we ought to see some buying. The Wall Street Sentiment survey however suggests that we'll trade down into a low by mid week before any substantial rally. The message board sentiment suggests that we will see a substantial rally too, soon. The topper, however, is the MACD Sell. We know this to be a great fade, so any weakness into mid week is a big-time buy. My call for the week is for a little rally that fails on Monday and a decline into Tuesday and probably Wednesday, then up big from from there.

 


The Mechanical Senticator will go long at the open and the Subjective Senticator Models will go long 1/2 at the open and add if we are down 1.50. Remember, these models must trade in the direction of the Senticator or not at all.

We do not have a ST Sentiment signal. The late volume tell was Bullish, so we're going to be patient going short. Since we've been publishing our ST Sentiment Signals, we've had 87 trades and 60 winners. We're much more active now and I'm offering more set ups when I'm not going to be around. If you'd like a trial, feel free to contact us.

Ideal ETF Portfolio (tracking portfolio):

50% long DIA at 127.54.
50% long UWM at 50.61

I'm about fully long. I'm probably going to lighten up, but I smell another run. Watch for an alert.

Past performance is no guarantee of future returns. All information included in this missive is derived from sources we believe to be reliable, but no guarantee can be made to that effect. None of the forgoing should be construed as an offer or solicitation to buy or sell any security. The publisher may have a long or short position in the funds or securities discussed at any given time. We aren't your advisor, unless you have a signed contract with us. Please review any trade that you do with your trusted advisor FIRST.

If you'd like to receive the ISA Daily Trade Navigator, you'll need to make sure to order at this link (please indicate your subscriber status in the "notes"). http://www.wallstreetsentiment.com/order.html

If you are a KTT or Institutional subscriber, your ISA Navigator and Premium upgrade subscription is included.

For more on using the ISA and the various sentiment poll data, click here: http://www.wallstreetsentiment.com/d/i.html

Mark Young
Editor

ABOUT SENTIMENT AND ANALYSIS

The Wall Street Sentiment Survey is taken each Friday from a generally static pool of experienced technical analysts (both private and professional). The Wall Street Sentiment Surveyees are not normally a good fade, though there are times when they can be.

The Wall Street Sentiment Survey data are useful on the short term; they tend to be right. Typically they are right sooner rather than later, if there's a large plurality. On the flip side of the equation, if 90% or more are Bullish or Bearish, the odds of them being right over the very short term are huge, but the odds of a major turn (in the opposite direction) soon thereafter are also quite good.

We have also found that when the Wall Street Sentiment Surveyees are evenly split, look for a BIG move in either direction, but usually down.

Over the years, we have found a number of other tools to help in evaluating the Wall Street Sentiment Survey. We publish this in our weekly "Institutional Sentiment & Analysis" (a part of our institutional research). These additional tools are our "Smart Money" poll, Amateur Trader survey, and our Senticator. All are proprietary surveys conducted by us.

We have found that the Senticator tends to be right by the end of the week (as much as 82.7% of the time), though it tends to be more accurate in a rising market than a falling one.

The "Smart Money" pollees are very useful when there is divergent opinion. It's generally NOT a good idea to fade the "Smart Money" unless "'EVERYONE'" (all sentiment measures) is in agreement. When in doubt about the meaning of the Wall Street Sentiment Survey, defer to the "Smart Money" poll or fade the "Amateur Survey". The "Smart Money" guys are folks with whom I've worked or whom I've watched for YEARS. They all have different approaches and they're all VERY good (not infallible, just good analysts/traders).

The Amateur Surveyees are your classic more emotional traders who tend to be wrong when they are heavily leaning in any one direction--which is often at a turning point.

In addition to these surveys, we chronicle multiple other polls and surveys including those conducted by our sister firm, Traders-Talk.com. We also review options data and fund shifts at Rydex. Additionally, we are also the sole publishers of the T-4 indicator created by Traders-talk--which is a fantastic turn indicator.

Subscriptions to Institutional Sentiment and Analysis are $99 per year. This also includes special sentiment updates and reports. Our polls are unique and insightful, and our analysis is some of the most accurate on the Street.

Order today by calling 1-800-769-6980 or order on-line at http://www.wallstreetsentiment.com/order.html